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V 


A    REVISION 
OF   THE    TREATY 

BEING   A  SEQUEL  TO 

THE  ECONOMIC   CONSEQUENCES 
OF   THE   PEACE 


BY 
JOHN  MAYNARU  KEYNES,  C.B. 

FELLOW    OF    king's    COLLEGE,    CAMBRIDGE 


a 


NEW  YORK 
IIARCOURT,   BRACE  AND  COMPANY 


COPYRIGHT,    1933,    BY 
HARCOURT,  BRACE  AND  COMPANY,   INC. 


PRINTED    IN    THE    U.  9.  A    BY 

THE    CUINM    ^'50j>^(l'  OONirANYS         ,  , 

^'    '    '   ft.\n'}A4t',    H.;  J.'        ■  «     '        I 


PREFACE 

The  Economic  Consequences  of  the  Peace,  which 
I  published  in  December  1919,  has  been  reprinted 
from  time  to  time  without  revision  or  correction. 
So  much  has  come  to  our  knowledge  since  then, 
that  a  revised  edition  of  that  book  would  be  out 
of  place.  I  have  thought  it  better,  therefore,  to 
leave  it  unaltered,  and  to  collect  together  in  this 
Sequel  the  corrections  and  additions  which  the 
flow  of  events  makes  necessary,  together  with  my 
reflections  on  the  present  facts. 

But  this  book  is  strictly  what  it  represents  it- 
self to  be — a  Sequel;  I  might  almost  have  said  an 
Appendix.  I  have  nothing  very  new  to  say  on 
the  fundamental  issues.  Some  of  the  Remedies 
which  I  proposed  two  years  ago  are  now  every- 
body's commonplaces,  and  I  have  nothing  startling 
to  add  to  them.  My  object  is  a  strictly  limited 
one,  namely  to  provide  facts  and  materials  for  an 
intelligent  review  of  the  Reparation  Problem  as  it 
now  is. 

''The  great  thing  about  this  wood,"  said  M. 
Clemenceau  of  his  pine  forest  in  La  Vendee,  "is 
that,  here,  there  is  not  the  slightest  chance  of 


VI  PREFACE 

meeting  Lloyd  George  or  President  Wilson. 
Nothing  liere  but  the  squirrels."  I  wish  that  I 
could  claim  the  same  advantages  for  this  book. 

J.  M.  Keynes. 
King's  College,  Cambridge, 
December  1921. 


CONTENTS 
CHAPTER  I 

FACE 

The  State  op  Opinion .        3 

CHAPTER  II 

Fbom  the  Ratification  of  the  Treaty  of  Versailles  to 

THE  Second  Ultimatum  of  J^ondon 11 

Excursus  I. — Coal 44 

Excursus  II. — Tiie  Legality  of  Occupyinq  Ger- 
many East  of  the  Khine 57 

CHAPTER  III 

The  Burden  of  the  London  Settlement  .  ...  64 
Excursus  III. — The  Wiesbaden  Agreement  .  .  02 
Excursus  IV. — The  Mark  Exchange     .       .       .     100 

CHAPTER  IV 

The  Reparation  Bill 106 

Excursus  V. — Receipts  and  Expenses  prior  to 

May  1,  1!)21 131 

Excursus    VI. — The    Division    of    Receipts    be- 
tween THE  Allies 138 

CHAPTER  V 
The  Legality  of  the  Clalm  for  Pensions    .       .       .       .144 

CHAPTER  VI 

Repabation,  Inteb-Ally  Debt,  and  Inteenational  Trade  .     163 

vii 


VIU  CONTENTS 


CHAPTER  VII 


PAGE 


TuE   Revision   of   the   Treaty   and  the   Settlement   of 

EUEOPE 179 


APPENDIX  OF  DOCUMENTS 

I.    Summary  of  Spa  Agreement   (July  1920) 
II.    The  Decisions  of  Paris  (January  1921)    . 

III.  The  Claims  Submitted  to  the  Reparation  Commis 

sioN  (February  1921) 

IV.  The  First  Ultimatum  of  London  (March  1921) 
V.    The  German  Counter-Proposal  (April  1921)    . 

VI.    The  Reparation  Commission's  Assessment   (April 

1921)  

VII.    The  Second  Ultimatum  of  London  (May  1921) 
VIII.    Summary  of  the  Wiesbaden  Agreement   (October 

1921)  

IX.   Tables  of  Inteb-Govebnmental  Indebtedness  . 


203 
207 

210 
213 
215 

219 

219 

228 
238 


INDEX       .........      .,       .        .        .     240 


A  REVISION  OF  THE  TREATY 

BEING   A    SEQUEL   TO 
THE  ECONOMIC  CONSEQUENCES  OF  THE  PEACE 


CHAPTER  I 
The  State  of  Opinion 

It  is  the  method  of  modern  statesmen  to  talk  as 
much  folly  as  the  public  demand  and  to  practise 
no  more  of  it  than  is  compatible  with  what  they 
have  said,  trusting  that  such  folly  in  action  as 
must  wait  on  folly  in  word  will  soon  disclose  itself 
as  such,  and  furnish  an  opportunity  for  slipping 
back  into  wisdom, — the  Montessori  system  for  the 
child,  the  Public.  He  who  contradicts  this  child 
will  soon  give  place  to  other  tutors.  Praise,  there- 
fore, the  beauty  of  the  flames  he  wishes  to  touch, 
the  music  of  the  breaking  toy ;  even  urge  him  for- 
ward ;  yet  waiting  with  vigilant  care,  the  wise  and 
kindly  savior  of  Society,  for  the  right  moment  to 
snatch  him  back,  just  singed  and  now  attentive. 

I  can  conceive  for  this  terrifying  statesmanship 
a  plausible  defense.  Mr.  Lloyd  George  took  the 
responsibility  for  a  Treaty  of  Peace,  which  was 
not  wise,  which  was  partly  impossible,  and  which 
endangered  the  life  of  Europe.  He  may  defend 
himself  by  saying  that  he  knew  that  it  was  not 
wise  and  was  partly  impossible  and  endangered 
the  life  of  Europe;  but  that  public  passions  and 
public  ignorance  play  a  part  in  the  world  of  which 

3 


4  A  REVISION   OF   THE  TREATY 

he  wlio  aspires  to  lead  a  democracy  must  take  ac- 
count; that  the  Peace  of  Versailles  was  the  best 
momentary  settlement  which  the  demands  of  the 
mob  and  the  characters  of  the  chief  actors  con- 
joined to  permit ;  and  for  the  life  of  Europe,  that 
he  has  spent  his  skill  and  strength  for  two  years 
in  avoiding  or  moderating  the  dangers. 

Such  claims  would  be  partly  true  and  cannot  be 
brushed  away.  The  private  history  of  the  Peace 
Conference,  as  it  has  been  disclosed  by  French 
and  American  participators,  displays  Mr.  Lloyd 
George  in  a  partly  favorable  light,  generally  striv- 
ing against  the  excesses  of  the  Treaty  and  doing 
what  he  could,  short  of  risking  a  personal  de- 
feat. The  public  history  of  the  two  years  which 
have  followed  it  exhibit  him  as  protecting  Europe 
from  as  many  of  the  evil  consequences  of  his  own 
Treaty,  as  it  lay  in  his  power  to  prevent,  with  a 
craft  few  could  have  bettered,  preserving  the 
peace,  though  not  the  prosperity,  of  Europe,  sel- 
dom expressing  the  truth,  yet  often  acting  under 
its  influence.  He  would  claim,  therefore,  that  by 
devious  paths,  a  faithful  servant  of  the  possible, 
he  was  serving  Man. 

He  may  judge  rightly  that  this  is  the  best  of 
which  a  democracy  is  capable, — to  be  jockeyed, 
humbugged,  cajoled  along  the  right  road.  A  pref- 
erence for  truth  or  for  sincerity  as  a  method  may 
be  a  prejudice  based  on  some  esthetic  or  personal 


THE   STATE   OF  OPINION  O 

standard,  inconsistent,  in  politics,  with  practical 
good. 

We  cannot  yet  tell.  Even  the  public  learns  by 
experience.  Will  the  charm  work  still,  when  the 
stock  of  statesmen's  credibility,  accumulated  be- 
fore these  times,  is  getting  exhausted? 

In  any  event,  private  individuals  are  not  under 
the  same  obligation  as  Cabinet  Ministers  to  sac- 
rifice veracity  to  the  public  weal.  It  is  a  per- 
mitted self-indulgence  for  a  private  person  to 
speak  and  write  freely.  Perhaps  it  may  even  con- 
tribute one  ingredient  to  the  congeries  of  things 
which  the  wands  of  statesmen  cause  to  work  to- 
gether, so  marvelously,  for  our  ultimate  good. 

For  these  reasons  I  do  not  admit  error  in  hav- 
ing based  The  Economic  Consequences  of  the 
Peace  on  a  literal  interpretation  of  the  Treaty  of 
Versailles,  or  in  having  examined  the  results  of 
actually  carrying  it  out.  I  argued  that  much  of 
it  was  impossible;  but  I  do  not  agree  with  many 
critics,  who  held  that,  for  this  very  reason,  it  was 
also  harmless.  Inside  opinion  accepted  from  the 
beginning  many  of  my  main  conclusions  about 
the  Treaty.^    But  it  was  not  therefore  unimpor- 

*  "Its  merely  colorable  fulfilment  of  solemn  contracts  with  a 
defeated  nation,  its  timorous  failure  to  reckon  with  economic 
realities,"  as  Professor  Allyn  Young  wrote  in  a  review  of  my 
book.  Yet  Professor  Young  has  thought  right,  nevertheless,  to 
make  himself  a  partial  apologist  of  the  Treaty,  and  to  describe 
it  as  "a  forward-looking  document." 


6  A  REVISION   OF  THE   TREATY 

tant  that  outside  opinion  should  accept  them  also. 

For  there  are,  in  the  present  times,  two  opin- 
ions ;  not,  as  in  former  ages,  the  true  and  the  false, 
but  the  outside  and  the  inside ;  the  opinion  of  the 
public  voiced  by  the  politicians  and  the  news- 
papers, and  the  opinion  of  the  politicians,  the  jour- 
nalists and  the  civil  servants,  upstairs  and  back- 
stairs and  behind-stairs,  expressed  in  limited  cir- 
cles. In  time  of  war  it  became  a  patriotic  duty 
that  the  two  opinions  should  be  as  different  as  pos- 
sible; and  some  seem  to  think  it  so  still. 

This  is  not  entirely  new.  But  there  has  been  a 
change.  Some  say  that  Mr.  Gladstone  was  a 
hypocrite;  yet  if  so,  he  dropped  no  mask  in  pri- 
vate life.  The  high  tragedians,  who  once  ranted 
in  the  Parliaments  of  the  world,  continued  it  at 
supper  afterwards.  But  appearances  can  no 
longer  be  kept  up  behind  the  scenes.  The  paint 
of  public  life,  if  it  is  ruddy  enough  to  cross  the 
flaring  footlights  of  to-day,  cannot  be  worn  in 
private, — which  makes  a  great  difference  to  the 
psychology  of  the  actors  themselves.  The  mul- 
titude which  lives  in  the  auditorium  of  the  world 
needs  something  larger  than  life  and  plainer  than 
the  truth.  Sound  itself  travels  too  slowly  in  this 
vast  theater,  and  a  true  word  no  longer  holds 
when  its  broken  echoes  have  reached  the  furthest 
listener 


THE  STATE  OF  OPINION  7 

Those  who  live  in  the  limited  circles  and  share 
the  inside  opinion  pay  both  too  much  and  too  lit- 
tle attention  to  the  outside  opinion ;  too  much,  be- 
cause, ready  in  words  and  promises  to  concede 
to  it  everything,  they  regard  open  opposition  as 
absurdly  futile ;  too  little,  because  they  believe  that 
these  words  and  promises  are  so  certainly  destined 
to  change  in  due  season,  that  it  is  pedantic,  tire- 
some, and  inappropriate  to  analyze  their  literal 
meaning  and  exact  consequences.  They  know  all 
this  nearly  as  well  as  the  critic,  who  wastes,  in 
their  view,  his  time  and  his  emotions  in  exciting 
himself  too  much  over  what,  on  his  own  showing, 
cannot  possibly  happen.  Nevertheless,  what  is 
said  before  the  world  is,  still,  of  deeper  conse- 
quence than  the  subterranean  breathings  and  well- 
informed  whisperings,  knowledge  of  which  allows 
inside  opinion  to  feel  superior  to  outside  opinion, 
even  at  the  moment  of  bowing  to  it. 

But  there  is  a  further  complication.  In  Eng- 
land (and  perhaps  elsewhere  also),  there  are  two 
outside  opinions,  that  which  is  expressed  in  the 
newspapers  and  that  which  the  mass  of  ordinary 
men  privately  suspect  to  be  true.  These  two  de- 
grees of  the  outside  opinion  are  much  nearer  to 
one  another  than  they  are  to  the  inside,  and  under 
some  aspects  they  are  identical ;  yet  there  is  under 
the  surface  a  real  difference  between  the  dog- 


8  A  REVISION"  OF  THE  TEEATY 

matism  and  definiteness  of  the  press  and  the  liv- 
ing, indefinite  belief  of  the  individual  man.  I 
fancy  that  even  in  1919  the  average  Englishman 
never  really  believed  in  the  indemnity ;  he  took  it 
always  with  a  grain  of  salt,  with  a  measure  of  in- 
tellectual doubt.  But  it  seemed  to  him  that  for  the 
time  being  there  could  be  little  practical  harm  in 
going  on  the  indemnity  tack,  and  also  that,  in  re- 
lation to  his  feelings  at  that  time,  a  belief  in  the 
possibility  of  boundless  payments  by  Germany 
was  in  better  sentiment,  even  if  less  true,  than  the 
contrary.  Thus  the  recent  modification  in  British 
outside  opinion  is  only  partly  intellectual,  and  is 
due  rather  to  changed  conditions;  for  it  is  seen 
that  perseverance  with  the  indemnity  does  now 
involve  practical  harm,  whilst  the  claims  of  sen- 
timent are  no  longer  so  decisive.  He  is  there- 
fore prepared  to  attend  to  arguments,  of  whicli 
he  had  always  been  aware  out  of  the  corner  of 
his  eye. 

Foreign  observers  are  apt  to  heed  too  little  these 
unspoken  sensibilities,  which  the  voice  of  the  press 
is  bound  to  express  ultimately.  Inside  opinion 
gradually  affects  them  by  percolating  to  wider  and 
wider  circles ;  and  they  are  susceptible  in  time  to 
argument,  common  sense,  or  self-interest.  It  is 
the  business  of  the  modern  politician  to  be  accu- 
rately aware  of  all  three  degrees;  he  must  have 


THE  STATE  OF  OPINION  9 

enough  intellect  to  understand  the  inside  opinion, 
enough  sympathy  to  detect  the  inner  outside  opin- 
ion, and  enough  brass  to  express  the  outer  outside 
opinion. 

Whether  this  account  is  true  or  fanciful,  there 
can  be  no  doubt  as  to  the  immense  change  in  pub- 
lic sentiment  over  the  past  two  years.  The  desire 
for  a  quiet  life,  for  reduced  commitments,  for 
comfortable  terms  with  our  neighbors  is  now  para- 
mount. The  megalomania  of  war  has  passed 
away,  and  every  one  wishes  to  conform  himself 
with  the  facts.  For  these  reasons  the  Repara- 
tion Chapter  of  the  Treaty  of  Versailles  is 
crumbling.  There  is  little  prospect  now  of  the 
disastrous  consequences  of  its  fulfilment. 

I  undertake  in  the  following  chapters  a  double 
task,  beginning  with  a  chronicle  of  events  and  a 
statement  of  the  present  facts,  and  concluding 
with  proposals  of  what  we  ought  to  do.  I  nat- 
urally attach  primary  importance  to  the  latter. 
But  it  is  not  only  of  historical  interest  to  glance 
at  the  recent  past.  If  we  look  back  a  little  closely 
on  the  two  years  which  have  just  elapsed  (and  the 
general  memory  unaided  is  now  so  weak  that  we 
know  the  past  little  better  than  the  future),  we 
shall  be  chiefly  struck,  I  think,  by  the  large  ele- 
ment of  injurious  make-believe.  My  concluding 
proposals  assume  that  this  element  of  make-be- 


10  A  EEVISION"  OF  THE  TREATY 

lieve  has  ceased  to  be  politically  necessary;  that 
outside  opinion  is  now  ready  for  inside  opinion  to 
disclose,  and  act  upon,  its  secret  convictions ;  and 
that  it  is  no  longer  an  act  of  futile  indiscretion  to 
speak  sensibly  in  public. 


CHAPTER  II 

From  the  RATrFiCATiON  of  the  Treaty  of 

Versailles  to  the  Second  Ultimatum 

of  London 

I.  The  Execution  of  the  Treaty  and  the  Plebiscites 

The  Treaty  of  Versailles  was  ratified  on  January 
10, 1920,  and  except  in  the  plebiscite  areas  its  ter- 
ritorial provisions  came  into  force  on  that  date. 
The  Slesvig  plebiscite  (February  and  March, 
1920)  awarded  the  north  to  Denmark  and  the  south 
to  Germany,  in  each  case  by  a  decisive  majority. 
The  East  Prussian  plebiscite  (July,  1920)  showed 
an  overwhelming  vote  for  Germany.  The  Upper 
Silesian  plebiscite  (March,  1921)  yielded  a  ma- 
jority of  nearly  two  to  one  in  favor  of  Germany 
for  the  province  as  a  whole,^  but  a  majority  for 
Poland  in  certain  areas  of  the  south  and  oast.  On 
the  basis  of  this  vote,  and  having  regard  to  the 
industrial  unity  of  certain  disputed  areas,  the 
principal  Allies,  with  the  exception  of  France, 

'More  exactly,  out  of  1,220,000  entitled  to  vote  and  1,180,000 
actual  voters,  707,000  votca  or  seven-elevenths  were  cast  for 
Germany,  and  470,000  votes  or  four-elevenths  for  Poland.  Out 
of  1022  communes,  844  showed  a  majority  for  Germany  and  678 
for  Poland.  Tiie  Polish  voters  were  mainly  rural,  as  is  shown  by 
the  fact  that  in  '.MS  towns  Germany  polled  207,000  votes  against 
70,000  for  Poland,  and  in  the  country  440,000  votes  against 
409,000  for  Poland. 

U 


12  A  REVISIONT  OF  THE  TEEATY 

were  of  opinion  that,  apart  from  the  southeastern 
districts  of  Pless  and  Rybnik  which,  although  they 
contain  undeveloped  coalfields  of  great  impor- 
tance, are  at  present  agricultural  in  character, 
nearly  the  whole  of  the  province  should  be  as- 
signed to  Germany.  Owing  to  the  inability  of 
France  to  accept  this  solution,  the  whole  problem 
was  referred  to  the  League  of  Nations  for  final 
arbitration.  This  body  bisected  the  industrial 
area  in  the  interests  of  racial  or  nationalistic  jus- 
tice; and  introduced  at  the  same  time,  in  the  en- 
deavor to  avoid  the  consequences  of  this  bisection, 
complicated  economic  provisions  of  doubtful  effi- 
ciency in  the  interests  of  material  prosperity. 
They  limited  these  provisions  to  fifteen  years, 
trusting  perhaps  that  something  will  have  oc- 
curred to  revise  their  decision  before  the  end  of 
that  time.  Broadly  speaking,  the  frontier  has  been 
drawn,  entirely  irrespective  of  economic  consid- 
erations, so  as  to  include  as  large  as  possible  a 
proportion  of  German  voters  on  one  side  of  it  and 
Polish  voters  on  the  other  (although  to  achieve 
this  result  it  has  been  thought  necessary  to  as- 
sign two  almost  purely  German  towns,  Kattowitz 
and  Konigshiitte,  to  Poland).  From  this  limited 
point  of  view  the  work  may  have  been  done  fairly. 
But  the  Treaty  had  directed  that  economic  and 
geographical  considerations  should  be  taken  into 
account  also. 


FROM  TREATY  TO  CONFERENCE  OF  LONDON      13 

I  do  not  intend  to  examine  in  detail  the  wisdom 
of  this  decision.  It  is  believed  in  Germany  that 
subterranean  influence  brought  to  bear  by  France 
contributed  to  the  result.  I  doubt  if  this  was  a 
material  factor,  except  that  the  officials  of  the 
League  were  naturally  anxious,  in  the  interests 
of  the  League  itself,  to  produce  a  solution  which 
would  not  be  a  fiasco  through  the  members  of  the 
Council  of  the  League  failing  to  agree  about  it 
amongst  themselves;  which  inevitably  imported  a 
certain  bias  in  favor  of  a  solution  acceptable  to 
France.  The  decision  raises,  I  think,  much  more 
fundamental  doubts  about  this  method  of  settling 
international  affairs. 

Difficulties  do  not  arise  in  simple  cases.  The 
League  of  Nations  will  be  called  in  where  there  is 
a  conflict  between  opposed  and  incommensurable 
claims.  A  good  decision  can  only  result  by  im- 
partial, disinterested,  very  well-informed  and  au- 
thoritative persons  taking  everything  into  ac- 
count. Since  International  Justice  is  dealing  with 
vast  organic  units  and  not  with  a  multitude  of 
small  units  of  which  the  individual  particulari- 
ties are  best  ignored  and  left  to  average  them- 
selves out,  it  cannot  be  the  same  thing  as  the  cut- 
and-dried  lawyer's  justice  of  the  municipal  court. 
It  will  be  a  dangerous  practice,  therefore,  to  en- 
trust tlie  settlement  of  the  ancient  conflicts  now 
inherent  in  the  tangled  structure  of  Europe,  to 


14  A  REVISION  OF   THE  TREATY 

elderly  gentlemen  from  South  America  and  the 
far  Asiatic  East,  who  will  deem  it  their  duty  to 
extract  a  strict  legal  interpretation  from  the 
available  signed  documents, — who  will,  that  is  to 
say,  take  account  of  as  few  things  as  possible,  in 
an  excusable  search  for  a  simplicity  which  is  not 
there.  That  would  only  give  us  more  judgments 
of  Solomon  with  the  ass's  ears,  a  Solomon  with 
the  bandaged  eyes  of  law,  who,  when  he  says  "Di- 
vide ye  the  living  child  in  twain,"  means  it. 

The  Wilsonian  dogma,  which  exalts  and  digni- 
fies the  divisions  of  race  and  nationality  above  the 
bonds  of  trade  and  culture,  and  guarantees  fron- 
tiers but  not  happiness,  is  deeply  embedded  in  the 
conception  of  the  League  of  Nations  as  at  present 
constituted.  It  yields  us  the  paradox  that  the 
first  experiment  in  international  government 
should  exert  its  influence  in  the  direction  of  inten- 
sifying nationalism. 

These  parenthetic  reflections  have  arisen  from 
the  fact  that  from  a  certain  limited  point  of  view 
the  Council  of  the  League  may  be  able  to  advance 
a  good  case  in  favor  of  its  decision.  My  criti- 
cism strikes  more  deeply  than  would  a  mere  al- 
legation of  partiality. 

With  the  conclusion  of  the  plebiscites  the  fron- 
tiers of  Germany  were  complete. 

In  January  1920  Holland  was  called  on  to  sur- 
render the  Kaiser;  and,  to  the  scarcely  concealed 


FROM  TREATY  TO  CONFERENCE  OF  LONDON   15 

relief  of  the  Governments  concerned,  she  duly  re- 
fused (January  23,  1920).  In  the  same  month  the 
surrender  of  some  thousands  of  "war  criminals" 
was  claimed,  but,  in  the  face  of  a  passionate  pro- 
test from  Germany,  was  not  insisted  on.  It  was 
arranged  instead  that,  in  the  tirst  instance  at 
least,  only  a  limited  number  of  cases  should  be 
pursued,  not  before  Allied  Courts,  as  provided  by 
the  Treaty,  but  before  the  High  Court  of  Leipzig. 
Some  such  cases  have  been  tried;  and  now,  by 
tacit  consent,  we  hear  no  more  about  it. 

On  March  13,  1920,  an  outbreak  by  the  reaction- 
aries in  Berlin  (the  Kapp  "Putsch")  resulted  in 
their  holding  the  capital  for  five  days  and  in  the 
flight  of  the  Ebert  Government  to  Dresden.  The 
defeat  of  this  outbreak,  largely  by  means  of  the 
weapon  of  the  general  strike  (the  first  success  of 
which  was,  it  is  curious  to  note,  in  defense  of  es- 
tablished order),  was  followed  by  Communist  dis- 
turbances in  Westphalia  and  the  Ruhr.  In  deal- 
ing with  this  second  outbreak,  the  German  Govern- 
ment despatclicd  more  troops  into  the  district  than 
was  permissible  under  the  Treaty,  w^itli  the  re- 
sult that  France  seized  the  opportunity,  without 
the  concurrence  of  her  Allies,  of  occupying  Frank- 
furt (April  6, 1920)  and  Darmstadt,  this  being  the 
immediate  occasion  of  the  first  of  the  series  of 
Allied  Conferences  recorded  below — the  Confer- 
ence of  San  Remo. 


16  A  REVISION   OF  THE   TREATY 

These  events,  and  also  doubts  as  to  the  capac- 
ity of  the  Central  German  Government  to  enforce 
its  authority  in  Bavaria,  led  to  successive  post- 
ponements of  the  completion  of  disarmament,  due 
under  the  Treaty  for  March  31, 1920,  until  its  final 
enforcement  by  the  London  Ultimatum  of  May  5, 
1921. 

There  remains  Reparation,  the  chief  subject  of 
the  chronicle  which  follows.  In  the  course  of 
1920  Germany  carried  out  certain  specific  deliv- 
eries and  restitutions  prescribed  by  the  Treaty. 
A  vast  quantity  of  identifiable  property,  removed 
from  France  and  Belgium,  was  duly  restored  to 
its  owners.^  The  Mercantile  Marine  was  surren- 
dered. Some  dyestuffs  were  delivered,  and  a  cer- 
tain quantity  of  coal.  But  Germany  paid  no  cash, 
and  the  real  problem  of  Reparation  was  still  post- 
poned.^ 

With  the  Conferences  of  the  spring  and  summer 
of  1920  there  began  the  long  series  of  attempts 
to  modify  the  impossibilities  of  the  Treaty  and 
to  mold  it  into  workable  form. 

^  Up  to  May  31,  1920,  securities  and  other  identifiable  assets  to 
the  value  of  8300  million  francs  and  500,000  tons  of  machinery 
and  raw  material  had  been  restored  to  France  {Report  of  Finance 
Commission  of  French  Chamber,  June  14,  1920),  also  445,000  head 
of  live  stock. 

^  Up  to  May,  1921,  the  cash  receipts  of  the  Reparation  Com- 
mission amounted  to  no  more  than  124,000,000  gold  marks. 


FROM   TREATY   TO   CONFERENCE   OF  LONDON      17 

II.  The  Conferences  of  San  R&mo  {April  19-26, 
1920),  Ilijthe  {May  15  and  June  19,  1920), 
Boulogne  {June  21,  22,  1920),  Brussels  {July 
2-3,  1920),  and  Spa  {July  5-16, 1920) 

It  is  difficult  to  keep  distinct  the  series  of  a 
dozen  discussions  between  the  Premiers  of  the 
Allied  Powers  which  occupied  the  year  from  April 
1920  to  April  1921.  The  result  of  each  Confer- 
ence was  generally  abortive,  but  the  total  effect 
was  cumulative ;  and  by  gradual  stages  the  project 
of  revising  the  Treaty  gained  ground  in  every 
quarter.  The  Conferences  furnish  an  extraordi- 
nary example  of  Mr.  Lloyd  George's  methods.  At 
each  of  them  he  pushed  tlie  French  as  far  as  he 
could,  but  not  as  far  as  he  wanted;  and  then  came 
home  to  acclaim  the  settlement  provisionally 
reached  (and  destined  to  be  changed  a  month 
later)  as  an  expression  of  complete  accord  between 
himself  and  his  French  colleague,  as  a  nearly  per- 
fect embodiment  of  wisdom,  and  as  a  settlement 
which  Germany  would  be  well  advised  to  accept 
as  final,  adding  about  every  third  time  that,  if  she 
did  not,  he  would  support  the  invasion  of  her  ter- 
ritory. As  time  went  on,  his  reputation  with  the 
French  was  not  improved ;  yet  he  steadily  gained 
his  object, — though  this  may  be  ascribed  not  to 
the  superiority  of  the  method  as  such,  but  to  facts 
being  implacably  on  his  side. 


18  A  REVISION"  OF   THE   TREATY 

The  first  of  the  series,  the  Conference  of  San 
Remo  (April  19-26,  1920),  was  held  under  the 
presidency  of  the  Italian  Premier,  Signer  Nitti, 
who  did  not  conceal  his  desire  to  revise  the  Treaty. 
M.  Millerand  stood,  of  course,  for  its  integrity, 
whilst  Mr.  Lloyd  George  (according  to  The  Times 
of  that  date)  occupied  a  middle  position.  Since 
it  was  evident  that  the  French  would  not  then  ac- 
cept any  new  formula,  Mr.  Lloyd  George  concen- 
trated his  forces  on  arranging  for  a  discussion 
face  to  face  between  the  Supreme  Council  and  the 
German  Government,  such  a  meeting,  extraordi- 
nary to  relate,  having  never  yet  been  arranged, 
neither  during  the  Peace  Conference  nor  after- 
wards. Defeated  in  a  proposal  to  invite  German 
representatives  to  San  Remo  forthwith,  he  suc- 
ceeded in  carrying  a  decision  to  summon  them  to 
visit  Spa  in  the  following  month  ''for  the  discus- 
sion of  the  practical  application  of  the  Reparation 
Clauses."  This  was  the  first  step;  and  for  the 
rest  the  Conference  contented  itself  with  a  Dec- 
laration on  Gorman  Disarmament.  Mr.  Lloyd 
George  had  had  to  concede  to  M.  Millerand  that 
the  integrity  of  the  Treaty  should  be  maintained ; 
but  speaking  in  the  House  of  Commons  on  his  re- 
turn home,  he  admitted  a  preference  for  a  not 
**too  literal"  interpretation  of  it. 

In  May  the  Premiers  met  in  privacy  at  Hythe 
to  consider  their  course  at  Spa.     The  notion  of 


FROM   TREATY   TO   CONFERENCE   OF  LONDON      19 

the  sliding  scale,  which  was  to  play  a  great  part 
in  the  Paris  Decisions  and  the  Second  Ultimatum 
of  London,  now  came  dejSnitely  on  the  carpet.  A 
Committee  of  Experts  was  appointed  to  prepare 
for  examination  a  scheme  by  which  Germany 
should  pay  a  certain  minimum  sum  each  year, 
supplemented  by  further  sums  in  accordance  with 
her  capacity.  This  opened  the  way  for  new 
ideas,  but  no  agreement  was  yet  in  sight  as  to 
actual  figures.  Meantime  the  Spa  Conference  was 
put  off  for  a  month. 

In  the  following  month  the  Premiers  met  again 
at  Boulogne  (June  21,  1920),  this  meeting  being 
preceded  by  an  informal  week-end  at  Hythe  (June 
19,  1920).  It  was  reported  that  on  this  occasion 
the  Allies  got  so  far  as  definitely  to  agree  on  the 
principle  of  minimum  annuities  extensible  in  ac- 
cordance with  Germany's  economic  revival.  Defi- 
nite figures  even  were  mentioned,  namely,  a  period 
of  thirty-five  years  and  minimum  annuities  of 
three  milliard  gold  marks.  The  Spa  Conference 
was  again  put  off  into  the  next  month. 

At  last  the  Spa  meeting  was  really  due.  Again 
the  Premiers  met  (Brussels,  July  2,  3,  1920)  to 
consider  the  course  they  would  adopt.  They  dis- 
cussed many  things,  especially  the  proportions  in 
which  the  still  hypothetical  Reparation  receipts 
were  to  be  divided  amongst  the  claimants.^    But 

•  See  Excursus  VI. 


20  A  REVISION   OF   THE   TREATY 

no  concrete  scheme  was  adopted  for  Reparation 
itself.  Meanwhile  a  memorandum  handed  in  by 
the  German  experts  made  it  plain  that  no  plan 
politically  possible  in  France  was  economically 
possible  in  Germany.  "The  Note  of  the  German 
economic  experts,"  wrote  The  Times  on  July  3, 
1920,  *'is  tantamount  to  a  demand  for  a  complete 
revision  of  the  Peace  Treaty.  The  Allies  have 
therefore  to  consider  whether  they  will  call  the 
Germans  sharply  to  order  under  the  menace  of 
definite  sanctions,  or  whether  they  will  risk  creat- 
ing the  impression  of  feebleness  by  dallying  with 
German  tergiversations."  This  was  a  good  idea; 
if  the  Allies  could  not  agree  amongst  themselves 
as  to  the  precise  way  of  altering  the  Treaty,  a 
"complete  accord"  between  them  could  be  re- 
established by  "calling  the  Germans  sharply  to 
order"  for  venturing  to  suggest  that  the  Treaty 
could  be  altered  at  all. 

At  last,  on  July  5,  1920,  the  long-heralded  Con- 
ference met.  But,  although  it  occupied  twelve 
days,  no  time  was  found  for  reaching  the  item  on 
the  agenda  which  it  had  been  primarily  summoned 
to  discuss — namely.  Reparations.  Before  this 
dangerous  topic  could  be  reached  urgent  engage- 
ments recalled  M.  Millerand  to  Paris.  One  of  the 
chief  subjects  actually  dealt  with,  coal,  is  treated 
in  Excursus  I.  at  the  conclusion  of  this  chapter. 
But  the  chief  significance  of  the  meeting  lay  in 


FROM   TREATY  TO  CONFERENCE   OF  LONDON      21 

the  fact  that  then  for  the  first  time  the  responsi- 
ble ministers  and  experts  of  Germany  and  the 
Allied  States  met  face  to  face  and  used  the  meth- 
ods of  public  conference  and  even  private  inti- 
macy. The  Spa  Conference  produced  no  plan; 
but  it  was  the  outward  sign  of  some  progress 
under  the  surface. 

III.  The  Brussels  Conference  {December  16-22, 

1920) 

Whilst  the  Spa  Conference  made  no  attempt 
to  discuss  the  general  question  of  the  Eeparation 
settlement,  it  was  again  agreed  that  the  latter 
should  be  tackled  at  an  early  date.  But  time 
passed  by,  and  nothing  happened.  On  September 
23,  1920,  M.  Millerand  succeeded  to  the  Presi- 
dency of  the  French  Republic,  and  his  place  as 
Premier  was  taken  by  M.  Leygues.  French  offi- 
cial opinion  steadily  receded  from  the  concessions, 
never  fully  admitted  to  the  French  public,  which 
Mr.  Lloyd  George  had  extracted  at  Boulogne. 
They  now  preferred  to  let  the  machinery  of  the 
Reparation  Commission  run  its  appointed  course. 
At  last,  however,  on  November  6, 1920,  after  much 
diplomatic  correspondence,  it  was  announced  that 
once  again  the  French  and  British  Governments 
were  in  *' complete  accord."  A  conference  of  ex- 
perts, nominated  by  the  Reparation  Commission, 
was  to  sit  with  German  experts  and  report;  then 


22  A  REVISION  OF  THE   TREATY 

a  conference  of  ministers  was  to  meet  the  Ger- 
man Government  and  report;  with  these  two  re- 
ports before  it  the  Reparation  Commission  was 
to  fix  the  amount  of  Germany's  liability;  and 
finally,  the  heads  of  the  Allied  Governments  were 
to  meet  and  "take  decisions."  "Thus,"  The 
Times  recorded,  "after  long  wanderings  in  the 
wilderness  we  are  back  once  more  at  the  Treaty 
of  Versailles."  The  re-perusal  of  old  files  of 
newspapers,  which  the  industrious  author  has  un- 
dertaken, corroborates,  if  nothing  else  does,  the 
words  of  the  Preacher  and  the  dustiness  of 
fate. 

The  first  stage  of  this  long  procedure  was  in 
fact  undertaken,  and  certain  permanent  officials 
of  the  Allied  Governments  ^  met  German  repre- 
sentatives at  Brussels,  shortly  before  Christmas 
1920,  to  ascertain  facts  and  to  explore  the  situa- 
tion generally.  This  was  a  conference  of  "ex- 
perts" as  distinguished  from  the  conferences  of 
"statesmen"  which  preceded  and  followed  it. 

The  work  of  the  Brussels  experts  was  so  largely 
ignored  and  overthrown  by  the  meetings  of  the 
statesmen  at  Paris  shortly  afterwards,  that  it  is 
not  now  worth  while  to  review  it  in  detail.    It 

*  Lord  D'Abernon  and  Sir  John  Bradbury  for  Great  Britain, 
Seydoux  and  Cheysson  for  France,  d'Amelio  and  Giannini  for 
Italy,  Delacroix  and  Lepreux  for  Belgium,  and,  in  accordance  with 
cuatom,  two  Japanese.  The  German  representatives  included 
Bergmann,  Havenstein,  Cuno,  Melchior,  von  Stauss,  Bonn,  and 
Schroeder. 


FROM  TREATY  TO  CONFERENCE  OF  LONDON   23 

marked,  however,  a  new  phase  in  our  relations 
with  Germany.  The  officials  of  the  two  sides  met 
in  an  informal  fashion  and  talked  together  like 
rational  beings.  They  were  representative  of  the 
pick  of  what  might  be  called  "international  of- 
ficialdom," cynical,  humane,  intelligent,  with  a 
strong  bias  towards  facts  and  a  realistic  treat- 
ment. Both  sides  believed  that  progress  was  being 
made  towards  a  solution ;  mutual  respect  was  fos- 
tered; and  a  sincere  regret  was  shared  at  the 
early  abandonment  of  reasonable  conversations. 

The  Brussels  experts  did  not  feel  themselves 
free  to  consider  an  average  payment  less  than 
that  contemplated  at  Boulogne.  They  recom- 
mended to  the  Allied  Governments,  accordingly, 
(1)  that  during  the  five  years  from  1921  to  1926 
Germany  should  pay  an  average  annuity  of  $750,- 
000,000,  but  that  this  average  annuity  should  be 
so  spread  over  the  five  years  that  less  than  this 
amount  would  be  payable  in  the  first  two  years 
and  more  in  the  last  two  years,  the  question  of  the 
amount  of  subsequent  payments,  after  the  ex- 
piry of  five  years,  being  postponed  for  the  pres- 
ent; 

(2)  That  a  substantial  part  of  this  sum  should 
be  paid  in  the  form  of  deliveries  of  material  and 
not  of  cash; 

(3)  That  the  annual  expenses  of  the  Armies  of 
Occupation  should  be  limited  to  $60,000,000,  which 


24  A  REVISION  OF   THE  TREATY 

payment  need  not  be  additional  to  the  above  an- 
nuities but  a  first  charge  on  them ; 

(4)  That  the  Allies  should  waive  their  claim  on 
Germany  to  build  ships  for  them  and  should  per- 
haps relinquish,  or  postpone,  the  claim  for  the  de- 
livery of  a  certain  number  of  the  existing  German 
vessels ; 

(5)  That  Germany  on  her  side  should  put  her 
finances  and  her  budget  in  order  and  should  agree 
to  the  Allies  taking  control  of  her  customs  in  the 
event  of  default  under  the  above  scheme. 

IV.  The  Decisions  of  Paris  {January  24-30,  1921) 

The  suggestions  of  the  Brussels  experts  fur- 
nished no  permanent  settlement  of  the  question, 
but  they  represented,  nevertheless,  a  great  ad- 
vance from  the  ideas  of  the  Treaty.  In  the 
meantime,  however,  opinion  in  France  was  ris- 
ing against  the  concessions  contemplated.  M. 
Leygues,  it  appeared,  would  be  unable  to  carry  in 
the  Chamber  the  scheme  discussed  at  Boulogne. 
Prolonged  political  intrigue  ended  in  the  succes- 
sion of  M.  Briand  to  the  Premiership,  with  the 
extreme  defenders  of  the  literal  integrity  of  the 
Treaty  of  Versailles,  M.  Poincare,  M.  Tardieu, 
and  M.  Klotz,  still  in  opposition.  The  projects  of 
Boulogne  and  Brussels  were  thrown  into  the  melt- 
ing-pot, and  another  conference  was  summoned  to 
meet  at  Paris  at  the  end  of  January  1921. 


FROM   TREATY   TO  CONFERENCE  OF  LONDON      25 

It  was  at  first  doubtful  whether  the  proceedings 
might  not  terminate  with  a  breach  between  the 
British  and  the  French  points  of  view.  Mr,  Lloyd 
George  was  justifiably  incensed  at  having  to  sur- 
render most  of  the  ground  which  had  seemed  defi- 
nitely gained  at  Boulogne ;  with  these  fluctuations 
negotiation  was  a  waste  of  time  and  progress  im- 
possible. He  was  also  disinclined  to  demand  pay- 
ments from  Germany  which  all  the  experts  now 
thought  impossible.  For  a  few  days  he  was  en- 
tirely unaccommodating  to  the  French  conten- 
tions; but  as  tlje  business  proceeded  he  became 
aware  that  M.  Briand  was  a  kindred  spirit,  and 
that,  whatever  nonsense  he  might  talk  in  public, 
he  was  secretly  quite  sensible.  A  breach  in  the 
conversations  might  mean  the  fall  of  Briand  and 
the  entrance  to  office  of  the  wild  men,  Poincare 
and  Tardieu,  who,  if  their  utterances  were  to  be 
taken  seriously  and  were  not  merely  a  ruse  to 
obtain  office,  might  very  well  disturb  the  peace  of 
Europe  before  they  could  be  flung  from  authority. 
"Was  it  not  better  that  Mr.  Lloyd  George  and  M. 
Briand,  both  secretly  sensible,  should  remain  col- 
leagues at  the  expense  of  a  little  nonsense  in  uni- 
son for  a  short  time?  This  view  of  the  situation 
prevailed,  and  an  ultimatum  was  conveyed  to  Ger- 
many on  the  following  lines.^ 

The  Reparation  payments,  proposed  to  Ger- 

*■  The  text  of  these  Decisions  is  given  in  Appendix  No.  2. 


26  A  EEVISION"  OF   THE   TREATY 

many  by  the  Paris  Conference,  were  made  up  of 
a  determinate  part  and  an  indeterminate  part. 
The  former  consisted  of  $500,000,000  per  annum 
for  two  years,  $750,000,000  for  the  next  three,  then 
$1,000,000,000  for  three  more,  and  $1,250,000,000 
for  three  after  that,  and,  finally,  $1,500,000,000 
annually  for  31  years.  The  latter  (the  indeter- 
minate part)  consisted  of  an  annual  sum,  addi- 
tional to  the  above,  equal  in  value  to  12  per  cent 
of  the  German  exports.  The  fixed  payments  un- 
der this  scheme  added  up  to  a  gross  total  of  $56,- 
500,000,000  which  was  a  little  less  than  the  gross 
total  contemplated  at  Boulogne  but,  with  the  ex- 
port proportion  added,  a  far  greater  sum. 

The  indeterminate  element  renders  impossible 
an  exact  calculation  of  this  burden,  and  it  is  no 
longer  worth  while  to  go  into  details.  But  I  cal- 
culated at  the  time,  without  contradiction,  that 
these  proposals  amounted  for  the  normal  period 
to  a  demand  exceeding  $2,000,000,000  per  annum, 
which  is  double  the  highest  figure  that  any  com- 
petent person  in  Great  Britain  or  in  the  United 
States  has  ever  attempted  to  justify. 

The  Paris  Decisions,  however,  coming  as  they 
did  after  the  discussions  of  Boulogne  and  Brus- 
sels, were  not  meant  seriously,  and  were  simply 
another  move  in  the  game,  to  give  M.  Briand  a 
breathing  space.  I  wonder  if  there  has  ever  been 
anything  quite  like  it — best  diagnosed  perhaps  as 


Fl'OM  TREATY  TO  CONFERENCE  OF  LONDON      27 

a  consequence  of  the  portentous  development  of 
"propaganda."  The  monster  had  escaped  iVom 
the  control  of  its  authors,  and  the  extraordinary 
situation  was  produced  in  which  the  most  power- 
ful statesmen  in  the  world  were  compelled  by- 
forces,  which  they  could  not  evade,  to  meet  to- 
gether day  after  day  to  discuss  detailed  variations 
of  what  they  knew  to  be  impossible. 

Mr.  Lloyd  George  successfully  took  care,  how- 
ever, that  the  bark  should  have  no  immediate  bite 
behind  it.  The  consideration  of  effective  penal- 
ties was  postponed,  and  the  Germans  were  invited 
to  attend  in  London  in  a  month's  time  to  convey 
their  answer  by  word  of  mouth. 

M.  Briand  duly  secured  his  triumph  in  the 
Chamber.  "Rarely,"  The  Times  reported,  "can 
M.  Briand  in  all  his  long  career  as  a  speaker  and 
Parliamentarian  have  been  in  better  form.  The 
flaying  of  M.  Tardieu  was  intensely  dramatic,  even 
if  at  times  almost  a  little  painful  for  the  spec- 
tators as  well  as  for  the  victim."  M.  Tardieu 
had  overstated  his  case,  and  "roundly  asserting 
that  the  policy  of  France  during  the  last  year  had 
been  based  on  the  conclusion  that  the  financial 
clauses  of  the  Treaty  of  Versailles  could  not  be 
executed,  had  gained  considerable  applause  by  de- 
claring that  this  was  just  the  thesis  of  the  pacifist, 
Mr.  Keynes,  and  of  the  German  delegate.  Count 
Brockdorff-Rantzau,"  —  which     was     certainly 


28  A  KEVISION  OF  THE  TREATY 

rather  unfair  to  the  Paris  Decisions.  But  by  that 
date,  even  in  France,  to  praise  the  perfections  of 
the  Treaty  v/as  to  make  oneself  ridiculous.  "I 
am  an  ingenuous  man,'*  said  M.  Briand  as  lie 
mounted  the  tribune,  ''and  when  I  received  from 
M.  Tardieu  news  that  he  was  going  to  interpellate 
me,  I  permitted  myself  to  feel  a  little  pleased.  I 
told  myself  that  M.  Tardieu  was  one  of  the  prin- 
cipal architects  of  the  Treaty  of  Versailles,  and 
that  as  such,  though  he  knew  its  good  qualities,  he 
would  also  know  its  blemishes,  and  that  he  would, 
therefore,  be  indulgent  to  a  man  who  had  done 
his  best  in  fulfilling  his  duty  of  applying  it — 
mais  voild  (with  a  gesture) — I  did  not  stop  to  re- 
member that  M.  Tardieu  had  already  expended  all 
his  stock  of  indulgence  upon  his  own  handiwork." 
The  monstrous  offspring  of  propaganda  was 
slowly  dying. 

V.  The  First  Conference  of  London  (March  1-7, 

1921) 

In  Germany  the  Paris  proposals  were  taken 
seriously  and  provoked  a  considerable  outcry. 
But  Dr.  Simons  accepted  the  invitation  to  London 
and  his  experts  got  to  work  at  a  counter-proposal. 
''I  was  in  agreement,"  he  said  at  Stuttgart  on 
February  13,  ''with  the  representatives  of  Brit- 
ain and  France  at  the  Brussels  Conference.  The 
Paris  Conference  shattered  that.    A  catastrophe 


FROM  TREATY  TO  CONFERENCE  OF  LONDON      29 

has  occurred.  German  public  opinion  will  never 
forget  these  figures.  Now  it  is  impossible  to  re- 
turn to  the  Seydoux  plan  put  forward  at  Brussels 
{i.e.,  a  provisional  settlement  for  five  years),  for 
the  German  people  would  always  see  enormous 
demands  rising  before  them  like  a  specter.  .  .  . 
We  shall  rather  accept  unjust  dictation  than  sign 
undertakings  we  are  not  firmly  persuaded  the 
German  people  can  keep." 

On  March  1,  1921,  Dr.  Simons  presented  his 
counter-proposal  to  the  Allies  assembled  in  Lon- 
don. Like  the  original  counter-proposal  of 
Brockdorff-Eantzau  at  Versailles,  it  was  not 
clear-cut  or  entirely  intelligible;  and  it  was  ru- 
mored that  the  German  experts  were  divided  in 
opinion  amongst  themselves.  Instead  of  stating 
in  plain  language  what  Germany  thought  she  could 
perform,  Dr.  Simons  started  from  the  figures  of 
the  Paris  Decisions  and  then  proceeded  by  trans- 
parent and  futile  juggling  to  reduce  them  to  a 
quite  different  figure.  The  process  was  as  fol- 
lows. Take  the  gross  total  of  the  fixed  annuities 
of  the  Paris  scheme  {i.e.,  apart  from  the  export 
proportion),  namely  $56,500,000,000,  and  calculate 
its  present  value  at  8  per  cent  interest,  namely 
$12,500,000,000;  deduct  from  this  $5,000,000,000  as 
the  alleged  (but  certainly  not  the  actual)  value 
of  Germany's  deliveries  up  to  date,  which  leaves 
$7,500,000,000.     This  was  the  utmost  Germany 


30  A  REVISION"  OF   THE   TREATY 

could  pay.  If  the  Allies  could  raise  an  interna- 
tional loan  of  $2,000,000,000,  Germany  would  pay 
the  interest  and  sinking  fund  on  this,  and  in  ad- 
dition $250,000,000  a  year  for  five  years,  towards 
the  discharge  of  the  capital  sum  remaining  over 
and  above  the  $2,000,000,000,  namely,  $5,500,000,- 
000,  which  capital  sum,  however,  would  not  carry 
interest  pending  repayment.  At  the  end  of  five 
years  the  rate  of  repayment  would  be  reconsid- 
ered. The  whole  proposal  was  contingent  on  the 
retention  of  Upper  Silesia  and  the  removal  of  all 
impediments  to  German  trade. 

The  actual  substance  of  this  proposal  was  not 
unreasonable  and  probably  as  good  as  the  Allies 
will  ultimately  secure.  But  the  figures  were  far 
below  even  those  of  the  Brussels  experts,  and  the 
mode  of  putting  it  forward  naturally  provoked 
prejudice.    It  was  summarily  rejected. 

Two  days  later  Mr.  Lloyd  George  read  to  the 
German  Delegation  a  lecture  on  the  guilt  of  their 
country,  described  their  proposals  as  ''an  offense 
and  an  exasperation,"  and  alleged  that  their  taxes 
were  *' ridiculously  low  compared  with  Great  Brit- 
ain's.'* He  then  delivered  a  formal  declaration 
on  behalf  of  the  Allies  that  Germany  was  in  de- 
fault in  respect  of  "the  delivery  for  trial  of  the 
criminals  who  have  offended  against  the  hiws  of 
war,  disarmament,  and  the  payment  in  cash  or 
kind  of  $5,000,000,000";  and  concluded  with  an 


FKOM   TREATY   TO  CONFERENCE  Of   LONDON      31 

ultimatum  ^  to  the  effect  that  unless  he  heard  by 
Monday  (March  7)  *'that  Germany  was  either 
prepared  to  accept  the  Paris  Decisions  or  to  sub- 
mit proposals  which  would  be  in  other  ways  an 
equally  satisfactory  discharge  of  her  obligations 
under  the  Treaty  of  Versailles  (subject  to  the 
concessions  made  in  the  Paris  proposals),"  the 
Allies  would  proceed  to  (1)  the  occupation  of 
Duisberg,  Ruhrort,  and  Diisseldorf  on  the  right 
bank  of  the  Khine,  (2)  a  levy  on  all  payments  due 
to  Germany  on  German  goods  sent  to  Allied  coun- 
tries, (3)  the  establishment  of  a  line  of  Customs 
between  the  occupied  area  of  Germany  and  the 
rest  of  Germany,  and  (4)  the  retention  of  the 
Customs  paid  on  goods  entering  or  leaving  the  oc- 
cupied area. 

During  the  next  few  days  negotiations  pro- 
ceeded, to  no  purpose,  behind  the  scenes.  At 
midnight  on  March  G,  M.  Loucheur  and  Lord 
D'Abernon  offered  the  Germans  the  alternative  of 
a  fixed  payment  of  $750,000,000  for  30  years  and 
an  export  proportion  of  30  per  cent.-  The  formal 
Conference  was  resumed  on  March  7.  ''A  crowd 
gathered  outside  Lancaster  House  in  the  morning 
and  cheered  Marshal  Foch  and  Mr.  Lloyd  George. 
Shouts  of  'Make  them  pay,  Lloyd  George!'  were 

*  The  full  text  is  given  in  Appendix  No.  4. 

'  Compare  this  Avitli  the  fixed  payment  of  9500,000,000  and  an 
export  proportion  of  26  per  cent  proposed  in  the  Becond  Ultimatum 
of  London,  only  two  mouths  later. 


32  A  REVISION  OF  THE  TREATY 

general.  The  German  delegates  were  regarded 
with  curiosity.  General  von  Seeckt  wore  uniform 
with  a  sword.  He  wore  also  an  eyeglass  in  the 
approved  manner  of  the  Prussian  officer  and  bore 
himself  as  the  incarnation  of  Prussian  militarism. 
Marshal  Foch,  Field-Marshal  Sir  Henry  Wilson, 
and  the  other  Allied  soldiers  also  wore  uniform."  ^ 
Dr.  Simons  communicated  his  formal  reply. 
He  would  accept  the  regime  of  the  Paris  Decisions 
as  fixed  for  the  first  five  years,  provided  Germany 
was  helped  to  pay  by  means  of  a  loan  and  retained 
Upper  Silesia.  At  the  end  of  five  years  the 
Treaty  of  Versailles  would  resume  its  authority, 
the  provisions  of  which  he  preferred,  as  he  was 
entitled  to  do,  to  the  proposals  of  Paris.  "The 
question  of  war  guilt  is  to  be  decided  neither  by 
the  Treaty,  nor  by  acknowledgment,  nor  by  Sanc- 
tions ;  only  history  will  be  able  to  decide  the  ques- 
tion as  to  who  was  responsible  for  the  world  war. 
"We  are  all  of  us  still  too  near  to  the  event."  The 
Sanctions  threatened  were,  he  pointed  out,  all  of 
them  illegal.  Germany  could  not  be  technically  in 
default  in  respect  of  Reparation  until  the  Repara- 
tion Commission  had  made  the  pronouncements 
due  from  them  on  May  1.  The  occupation  of  fur- 
ther German  territory  was  not  lawful  under  the 
Treaty.  The  retention  of  part  of  the  value  of 
German  goods  was  contrary  to  undertakings  given 

'  The  Times,  March  8,  1921. 


FROM  TREATY  TO  CONFERENCE  OF  LONDON   33 

by  the  British  and  Belgian  Governments.  The 
erection  of  a  special  Customs  tariff  in  the  Rhine- 
land  was  only  permissible  under  Article  270  of  the 
Treaty  for  the  protection  of  the  economic  inter- 
ests of  the  Rliineland  population  and  not  for  the 
punishment  of  the  whole  German  people  in  re- 
spect of  unfulfilled  Treaty  obligations.  The  argu- 
ments as  to  the  illegality  of  the  Sanctions  were 
indisputable,  and  Mr.  Lloyd  George  made  no  at- 
tempt to  answer  them.  He  announced  that  the 
Sanctions  would  be  put  into  operation  immedi- 
ately. 

The  rupture  of  the  negotiations  was  received  in 
Paris  "with  a  sigh  of  relief,"^  and  orders  were 
telegraphed  by  Marshal  Foch  for  his  troops  to 
march  at  7  a.m.  next  morning. 

No  new  Reparation  scheme,  therefore,  emerged 
from  the  Conference  of  London.  Mr.  Lloyd 
George's  acquiescence  in  the  Decisions  of  Paris 
had  led  him  too  far.  Some  measure  of  personal 
annoyance  at  the  demeanor  of  the  German  repre- 
sentatives and  the  failure  of  what,  in  its  incep- 
tion, may  have  been  intended  as  bluff,  had  ended 
in  his  agreeing  to  an  attempt  to  enforce  the  De- 
cisions by  the  invasion  of  Germany.  The  eco- 
nomic penalties,  whether  they  were  legal  or  not, 
were  so  obviously  ineffective  for  the  purpose  of 
collecting  money,  that  they  can  hardly  have  been 

*  The  Times,  March  8,  1921. 


34  A  REVISION   OF   THE   TREATY 

intended  for  that  purpose,  and  were  rather  de- 
signed to  frighten  Germany  into  putting  her  name 
to  what  she  could  not,  and  did  not  intend  to  per- 
form, by  threatening  a  serious  step  in  the  direction 
of  the  policy,  openly  advocated  in  certain  French 
quarters,  of  permanently  detaching  the  Rhine 
provinces  from  the  German  Commonwealth.  The 
grave  feature  of  the  Conference  of  London  lay 
partly  in  Great  Britain's  lending  herself  to  a  fur- 
therance of  this  policy,  and  partly  in  contempt  for 
the  due  form  and  processes  of  law. 

For  it  was  impossible  to  defend  the  legality  of 
the  occupation  of  the  three  towns  under  the 
Treaty  of  Versailles.^  Mr.  Lloyd  George  endeav- 
ored to  do  so  in  the  House  of  Commons,  but  at  a 
later  stage  of  the  debate  the  contention  was  vir- 
tually abandoned  by  the  Attorney-General. 

The  object  of  the  Allies  was  to  compel  Germany 
to  accept  the  Decisions  of  Paris.  But  Germany's 
refusal  to  accept  these  proposals  was  within  her 
rights  and  not  contrary  to  the  Treaty,  since  they 
lay  outside  the  Treaty  and  included  features  un- 
authorized by  the  Treaty  which  Germany  was  at 
liberty  either  to  accept  or  to  reject.  It  was  nec- 
essary, therefore,  for  the  Allies  to  find  some  other 
pretext.    Their  effort  in  this  direction  was  per- 


'  A  week  or  two  later  the  German  Government  made  a  formal 
appeal  to  the  L^^agfue  of  Nations  against  the  legality  of  this  act; 
but  I  am  not  aware  that  the  League  took  any  action  on  it. 


FROM  TREATY  TO  CONFERENCE  OF  LONDON   35 

fuiictory,  and  consisted,  as  already  recorded,  in 
a  vague  reference  to  war  criminals,  disarmament, 
and  the  payment  of  20  milliard  gold  marks. 

The  allegation  of  default  in  paying  the  20  mil- 
liard gold  marks  was  manifestly  untenable  at  that 
date  (March  7, 1921) ;  for  according  to  the  Treaty, 
Germany  had  to  pay  this  sum  by  May  1, 1921,  "in 
such  instalments  and  in  such  manner  as  the  Repa- 
ration Commission  may  fix,"  and  in  March  1921 
the  Reparation  Commission  had  not  yet  de- 
manded these  cash  payments/  But  assuming 
that  tliere  had  been  technical  default  in  respect 
of  the  war  criminals  and  disarmament  (and  the 
original  provisions  of  the  Treaty  had  been  so  con- 
stantly niodifiod  that  it  was. very  diflicult  to  say 
to  what  extent  this  was  the  case),  it  was  our  duty 
to  state  our  charges  precisely^  and,  if  penalties 
were  threatened,  to  make  these  penalties  depend- 
ent on  a  failure  to  meet  our  charges.  "We  were 
not  entitled  to  make  vague  charges,  and  then 
threaten  penalties  unless  Germany  agreed  to 
something  which  had  nothing  to  do  with  the 
charges.  The  Ultimatum  of  March  7  substituted 
for  the  Treaty  the  intermittent  application  of 
force  in  exaction  of  varying  demands.    For  when- 

'  A  f(.\v  weeks  lator  the  Reparation  CommisHion  endeavored  to 
put  tlie  action  of  the  Supreme  Couneil  in  order,  by  demanding 
one  milliard  marks  in  gold  ($250,000,000),  that  is  to  say,  the 
greater  part  of  the  reserve  ot  the  Kcichsbank  against  its  note 
issue.    This  demand  was  afterwards  dropped. 


36  A  REVISION"  OF   THE  TREATY 

ever  Germany  was  involved  in  a  technical  breach 
of  any  one  part  of  the  Treaty,  the  Allies  were, 
apparently,  to  consider  themselves  entitled  to 
make  any  changes  they  saw  fit  in  any  other  part 
of  the  Treaty. 

In  any  case  the  invasion  of  Germany  beyond 
the  Ehine  was  not  a  lawful  act  under  the  Treaty. 
This  question  became  of  even  greater  importance 
in  the  following  month,  when  the  French  an- 
nounced their  intention  of  occupying  the  Ruhr. 
The  legal  issue  is  discussed  in  Excursus  II.  at  the 
conclusion  of  this  Chapter. 


VI.  The  Second  Conference  of  London 
{April  2^-May  5,  1921) 

The  next  two  months  were  stormy.  The  Sanc- 
tions embittered  the  situation  in  Germany  with- 
out producing  any  symptoms  of  surrender  in  the 
German  Government.  Towards  the  end  of  March 
the  latter  sought  the  intervention  of  the  United 
States  and  transmitted  a  new  counter-proposal 
through  the  Government  of  that  country.  In  ad- 
dition to  being  straightforward  and  more  precise, 
this  offer  was  materially  better  than  that  of  Dr. 
Simons  in  London  at  the  beginning  of  the  month. 
The  chief  provisions  *  were  as  follows : 

*^The  full  text  is  given  in  Appendix  No.  5. 


FROM  TREATY  TO  CONFERENCE   OF  LONDON      37 

1.  The  German  liability  to  be  fixed  at  $12,500,- 
000,000  present  value. 

2.  As  much  of  this  as  possible  to  be  raised  im- 
mediately by  an  international  loan,  issued  on  at- 
tractive terms,  of  which  the  proceeds  would  be 
handed  over  to  the  Allies,  and  the  interest  and 
sinking  fund  on  which  Germany  would  bind  her- 
self to  meet. 

3.  Germany  to  pay  interest  on  the  balance  at  4 
per  cent  for  the  present. 

4.  The  sinking  fund  on  the  balance  to  vary  with 
the  rate  of  Germany's  recovery. 

5.  Germany,  in  part  discharge  of  the  above,  to 
take  upon  herself  the  actual  reconstruction  of 
the  devastated  areas  on  any  lines  agreeable  to  the 
Allies,  and  in  addition  to  make  deliveries  in  kind 
on  commercial  lines. 

6.  Germany  is  prepared,  "up  to  her  powers  of 
performance,"  to  assume  the  obligations  of  the 
Allies  to  America. 

7.  As  an  earnest  of  her  good  intentions,  she 
offers  $250,000,000  in  cash  immediately. 

If  this  is  compared  with  Dr.  Simons 's  first  offer, 
it  will  be  seen  that  it  is  at  least  50  per  cent  better, 
because  there  is  no  longer  any  talk  of  deducting 
from  the  total  of  $12,500,000,000  an  alleged  (and 
in  fact  imaginary)  sum  of  $5,000,000,000  in  re- 
spect of  deliveries  prior  to  May  1,  1921.  If  we 
assume   an  international  loan   of  $1,250,000,000, 


38  A  EEVISION"   OF   THE   TREATY 

costing  8  per  cent  for  interest  and  sinking  fund,* 
the  German  offer  amounted  to  an  immediate  pay- 
ment of  $550,000,000  i^er  annum,  with  a  possibil- 
ity of  an  increase  later  in  proportion  to  the  rate 
of  Germany's  economic  recovery. 

The  United  States  Government,  having  first  as- 
certained privately  that  this  offer  would  not  be 
acceptable  to  the  Allies,  refrained  from  its  formal 
transmission.^  On  this  account,  and  also  because 
it  was  overshadowed  shortly  afterwards  by  the 
Second  Conference  of  London,  this  very  straight- 
forward proposal  has  never  received  the  atten- 
tion it  deserves.  It  was  carefully  and  precisely 
drawn  up,  and  probably  represented  the  full 
maximum  that  Germany  could  have  performed,  if 
not  more. 

But  the  offer,  as  I  have  said,  made  very  little 
impression ;  it  was  largely  ignored  in  the  press, 
and  scarcely  commented  on  anywhere.  For  in  the 
two  months  which  elapsed  between  the  First  and 
Second  Conferences  of  London  there  were  two 
events  of  great  importance,  which  modified  the 
situation  materially.^ 

The  first  of  these  was  the  result  of  the  Silesian 

*  The  practicability  of  such  a  loan  on  a  large  scale  is  of  course 
more  than  doubtful. 

*  The  German  Government  is  reported  also  to  have  offered, 
alternatively,  to  accept  any  sum  which  the  President  of  the 
United   States  might  fix. 

*  After  the  enforcement  of  the  Sanctions  and  the  failure  of  the 
counter-proposals,  the  Cabinet  of  Herr  Fehrenbach  and  Dr.  Simons 
was  succeeded  by  that  of  Dr.  Wirth. 


FEOM  TKEATY  TO  CONFERENCE  OF  LONDON      39 

plebiscite  held  in  March  1921.  The  earlier  Ger- 
man Reparation  offers  had  all  been  contingent  on 
her  retention  of  Upper  Silesia ;  and  this  condition 
was  one  which,  in  advance  of  the  plebiscite,  the 
Allies  were  unable  to  accept.  But  it  now  ap- 
peared that  Germany  was  in  fact  entitled  to  most 
of  the  country,  and,  possibly,  to  the  greater  part 
of  the  industrial  area.  But  this  result  also 
brought  to  a  head  the  acute  divergence  between 
the  policy  of  France  and  the  policy  of  the  other 
Allies  towards  this  question. 

The  second  event  was  the  decision  of  the  Repa- 
ration Commission,  communicated  to  Germany  on 
April  27,  1921,  as  to  her  aggregate  liabilities  un- 
der the  Treaty.  Allied  Finance  Ministers  had 
foreshadowed  300  milliard  gold  marks ;  at  the  time 
of  the  Decisions  of  Paris,  responsible  opinion  ex- 
pected 160-200  milliards ;  ^  and  the  author  of  Tlie 
Economic  Consequences  of  the  Peace  had  suffered 
widespread  calumny  for  fixing  on  the  figure  of  137 
milliards,-  as  being  the  nearest  estimate  he  could 
make.  The  public,  and  the  Government  also,  were, 
therefore,  taken  by  surprise  when  the  Reparation 
Commission  announced  that  they  unanimously  as- 
sessed the  figure  at  132  milliards  {i.e.,  $33,000,- 
000,000)."    It  now  turned  out  that  the  Decisions 

'  As  late  as  January  26,  1921,  M.  Doumer  gave  a  forecast  of 
240  milliards. 

'  Exclusive  of  sums  due  in  repayment  of  war  loans  made  to 
Belgium. 


40  A  REVISIOT^   OF   THE   TREATY 

of  Paris,  which  had  been  represented  as  a  mate- 
rial amelioration  of  the  Treaty  which  Germany- 
was  ungrateful  not  to  accept,  were  no  such  thing; 
and  that  Germany  was  at  that  moment  suffering 
from  an  invasion  of  her  territory  for  a  refusal  to 
subscribe  to  terms  which  were  severer  in  some  re- 
spects than  the  Treaty  itself.  I  shall  examine  the 
decision  of  the  Reparation  Commission  in  detail 
in  Chapter  IV.  It  put  the  question  on  a  new  basis 
and  the  Decisions  of  London  could  hardly  have 
been  possible  otherwise. 

The  decision  of  the  Reparation  Commission  and 
the  arrival  of  the  date,  May  1,  1921,  fixed  in  the 
Treaty  for  the  promulgation  of  a  definite  Repa- 
ration scheme,  provided  a  sufficient  ground  for 
reopening  the  whole  question.  Germany  had  re- 
fused the  Decisions  of  Paris;  the  Sanctions  had 
failed  to  move  her;  the  regime  of  the  Treaty  was 
therefore  reinstated ;  and  under  the  Treaty  it  was 
for  the  Reparation  Commission  to  propose  a 
scheme. 

In  these  circumstances  the  Allies  met  once  more 
in  London  in  the  closing  days  of  April  1921.  The 
scheme  there  concerted  was  really  the  work  of  the 
Supreme  Council,  but  the  forms  of  the  Treaty 
were  preserved,  and  the  Reparation  Commission 
were  summoned  from  Paris  to  adopt  and  promul- 
gate as  their  own  the  decree  of  the  Supreme  Coun- 
cil. 


FROM  TREATY  TO  CONFERENCE  OF  LONDON      41 

The  Conference  met  in  circumstances  of  great 
tension.  M.  Briand  liad  found  it  necessary  to 
placate  his  Chamber  by  announcing  that  he  in- 
tended to  occupy  the  Ruhr  on  May  1.  The  policy 
of  violence  and  illegality,  which  began  with  the 
Conference  of  Paris,  had  always  included  hitherto 
just  a  sufficient  ingredient  of  make-believe  to  pre- 
vent its  being  as  dangerous  as  it  pretended  to  the 
peace  and  prosperity  of  Europe.  But  a  point  had 
now  been  reached  when  something  definite, 
whether  good  or  bad,  seemed  bound  to  happen; 
and  there  was  every  reason  for  anxiety.  Mr. 
Lloyd  George  and  M.  Briand  had  walked  hand- 
in-hand  to  the  edge  of  a  precipice;  Mr.  Lloyd 
George  had  looked  over  the  edge;  and  M.  Briand 
had  praised  the  beauties  of  the  prospect  below  and 
the  exhilarating  sensations  of  a  descent.  Mr. 
Lloyd  George,  having  indulged  to  the  full  his  ha- 
bitual morbid  taste  for  looking  over,  would  cer- 
tainly end  in  drawing  back,  explaining  at  the  same 
time  how  much  he  sympathized  with  M.  Briand 's 
standpoint.    But  would  M.  Briand? 

In  this  atmosphere  the  Conference  met,  and, 
considering  all  the  circumstances,  including  the 
past  commitments  of  the  principals,  the  result  was, 
on  the  whole,  a  victory  for  good  sense,  not  least 
because  the  Allies  there  decided  to  return  to  the 
pathway  of  legality  within  the  ambit  of  the  Treaty. 
The  new  proposals,  concerted  at  this  Conference, 


42  A  REVISION  OF  THE  TREATY 

were,  whether  they  were  practicable  or  not  in  exe- 
cution, a  lawful  development  of  the  Treaty,  and 
in  this  respect  sharply  distinguished  from  the  De- 
cisions of  Paris  in  the  January  preceding.  How- 
ever bad  the  Treaty  might  be,  the  London  scheme 
provided  a  way  of  escape  from  a  policy  worse 
even  than  that  of  the  Treaty, — acts,  that  is,  of 
arbitrary  lawlessness  based  on  the  mere  posses- 
sion of  superior  force. 

In  one  respect  the  Second  Ultimatum  of  Lon- 
don was  lawless;  for  it  included  an  illegal  threat 
to  occupy  the  Ruhr  Valley  if  Germany  refused  its 
terms.  But  this  was  for  the  sake  of  M.  Briand, 
whose  minimum  requirement  was  that  he  should 
at  least  be  able  to  go  home  in  a  position  to  use, 
for  conversational  purposes,  the  charms  of  the 
precipice  from  which  he  was  hurrying  away.  And 
the  Ultimatum  made  no  demand  on  Germany  to 
which  she  was  not  already  committed  by  her  sig- 
nature to  the  Treaty. 

For  this  reason  the  German  Government  was 
right,  in  my  judgment,  to  accept  the  Ultimatum 
unqualified,  even  though  it  still  included  demands 
impossible  of  fulfilment.  For  good  or  ill  Ger- 
many had  signed  the  Treaty.  The  new  scheme 
added  nothing  to  the  Treaty's  burdens,  and,  al- 
though a  reasonable  permanent  settlement  was 
left  where  it  was  before, — in  the  future, — in  some 
respects  it  abated  them.    Its  ratification,  in  May 


FROM  TKEATY  TO  CONFERENCE  OF  LONDON   43 

1921,  was  in  conformity  with  the  Treaty,  and 
merely  carried  into  effect  what  Germany  had  had 
reason  to  anticipate  for  two  years  past.  It  did 
not  call  on  her  to  do  immediately — that  is  to  say, 
in  the  course  of  the  next  six  months — anything  in- 
capable of  performance.  It  wiped  out  the  im- 
possible liability  under  which  she  lay  of  paying 
forthwith  a  balance  of  $3,000,000,000  due  under 
the  Treaty  on  jMay  1.  And,  above  all,  it  obviated 
the  occupation  of  the  Ruhr  and  preserved  the 
peace  of  Europe. 

There  were  those  in  Germany  who  held  that  it 
must  be  wrong  that  Germany  should  under  threats 
profess  insincerely  what  she  could  not  perform. 
But  the  submissive  acceptance  by  Germany  of  a 
lawful  notice  under  a  Treaty  she  had  already 
signed  committed  her  to  no  such  profession,  and 
involved  no  recantation  of  her  recent  communica- 
tion through  the  President  of  the  United  States 
as  to  what  would  eventually  prove  in  her  sincere 
belief  to  be  the  limits  of  practicable  performance. 

In  the  existence  of  such  sentiments,  however, 
Germany's  chief  difficulty  lay.  It  has  not  been 
understood  in  England  or  in  America  how  deep 
a  wound  has  been  inflicted  on  Germany's  self-re- 
spect by  compelling  her,  not  merely  to  perform 
acts,  but  to  subscribe  to  beliefs  which  she  did  not 
in  fact  accept.  It  is  not  usual  in  civilized  coun- 
tries to  use  force  to  compel  wrongdoers  to  con- 


44  A  REVISION  OF  THE  TREATY 

fess,  even  when  we  are  convinced  of  their  guilt; 
it  is  still  more  barbarous  to  use  force,  after  the 
fashion  of  inquisitors,  to  compel  adherence  to  an 
article  of  belief  because  we  ourselves  believe  it. 
Yet  towards  Germany  the  Allies  had  appeared  to 
adopt  this  base  and  injurious  practice,  and  had  en- 
forced on  this  people  at  the  point  of  the  bayonet 
the  final  humiliation  of  reciting,  through  the 
mouths  of  their  representatives,  what  they  be- 
lieved to  be  untrue. 

But  in  the  Second  Ultimatum  of  London  the 
Allies  were  no  longer  in  this  fanatical  mood,  and 
no  such  requirement  was  intended.  I  hoped, 
therefore,  at  the  time  that  Germany  would  accept 
the  notification  of  the  Allies  and  do  her  best  to 
obey  it,  trusting  that  the  whole  world  is  not  un- 
reasonable and  unjust,  whatever  the  newspapers 
may  say;  that  Time  is  a  healer  and  an  illumina- 
tor; and  that  we  had  still  to  wait  a  little  before 
Europe  and  the  United  States  could  accomplish 
in  wisdom  and  mercy  the  economic  settlement  of 
the  war. 

EXCURSUS  I 

COAL. 

The  question  of  coal  has  always  considerable 
importance  for  Reparation,  both  because  (in  spite 
of  the  exaggerations  of  the  Treaty)  it  is  a  form 
in  which  Germany  can  make  important  payments. 


COAL  45 

and  also  because  of  the  reaction  of  coal  deliveries 
on  Germany's  internal  economy.  Up  to  the  mid- 
dle of  1921  Germany's  payments  for  Reparation 
were  almost  entirely  in  the  form  of  coal.  And 
coal  was  the  main  topic  of  the  Spa  Conference, 
where  for  the  first  time  the  Governments  of  the 
Allies  and  of  Germany  met  face  to  face. 

Under  the  terms  of  the  Treaty  Germany  was  to 
deliver  3,400,000  tons  of  coal  per  month.  For 
reasons  explained  in  detail  in  The  Economic  Con- 
sequences of  the  Peace  (pp.  74-89)  this  total  was 
a  figure  of  rhetoric  and  not  capable  of  realiza- 
tion. Accordingly  for  the  first  quarter  of  1920 
the  Reparation  Commission  reduced  their  demand 
to  1,660,000  tons  per  month,  and  in  the  second 
quarter  to  1,500,000  tons  per  month;  whilst  in  the 
second  quarter  Germany  actually  delivered  at  the 
rate  of  770,000  tons  per  month.  This  last  fissure 
was  unduly  low,  and  by  the  latter  date  coal  was 
in  short  supply  throughout  the  world  and  very 
dear.  The  main  object  of  the  Spa  Coal  Agree- 
ment was,  therefore,  to  secure  for  France  an  in- 
creased supply  of  German  coal. 

The  Conference  was  successful  in  obtaining 
coal,  but  on  terms  not  unfavorable  to  Germany. 
After  much  bargaining  the  deliveries  were  fixed 
at  2,000,000  tons  a  month  for  six  months  from 
August  1920.  But  the  German  representatives 
succeeded  in  persuading  the  Allies  that  they  could 


^46  A  REVISION   OF   THE  TREATY 

not  deliver  this  amount  unless  their  miners  were 
better  fed  and  that  this  meant  foreign  credit. 
The  Allies  agreed,  therefore,  to  pay  Germany- 
something  substantial  for  this  coal,  the  sums  thus 
received  to  be  utilized  in  purchasing  from  abroad 
additional  food  for  the  miners.  In  form,  the 
greater  part  of  the  sum  thus  paid  was  a  loan; 
but,  since  it  was  set  oif  as  a  prior  charge  against 
the  value  of  Reparation  deliveries  {e.g.,  the 
ships),  it  really  amounted  to  paying  back  to  Ger- 
many the  value  of  a  part  of  these  deliveries.  Ger- 
many's total  cash  receipts^  under  these  arrange- 
ments actually  came  to  about  360,000,000  gold 
marks,-  which  worked  out  at  about  40s.  per  ton 
averaged  over  the  whole  of  the  deliveries.  As  at 
this  time  the  German  internal  price  was  from  25s. 
to  30s.  per  ton,  the  German  Government  received 
in  foreign  currency  substantially  more  than  they 
had  to  pay  for  the  coal  to  the  home  producers. 
The  high  figure  of  2,000,000  tons  per  month  in- 
volved short  supplies  to  German  transport  and 


*  Under  the  Spa  Agreement  { see  Appendix  No.  1 )  Germany 
was  to  be  paid  in  cash  5  gold  marks  per  ton  for  all  coal  delivered, 
and,  in  the  case  of  coal  delivered  overland,  "lent"  (i.e ,  advanced 
out  of  Reparation  receipts)  the  difference  between  the  German 
inland  price  and  the  Britisli  export  price.  At  the  date  of  the  Spa 
Conference  this  difference  was  about  70s.  per  ton  (100s.  less  30s.), 
but  this  sum  was  not  to  be  advanced  in  the  case  of  the  unde- 
termined amount  of  coal  delivered  hy  sea.  The  advances  were 
made  by  the  Allies  in  the  proportions,  61  per  cent  by  France,  24 
per  cent  by  Great  Britain,  and  15  per  cent  by  Belgium  and  Italy. 

*  For  details  of  these  payments  see  p,  133. 


COAL  47 

industry.  But  the  money  was  badly  wanted,  and 
was  of  the  utmost  assistance  in  paying  for  the 
German  food  program  (and  also  in  meeting  Ger- 
man liabilities  in  respect  of  pre-war  debts)  dur- 
ing the  autumn  and  winter  of  1920. 

This  is  a  convenient  point  at  which  to  record 
the  subsequent  history  of  the  coal  deliveries.  Dur- 
ing the  next  six  months  Germany  very  nearly  ful- 
filled the  Spa  Agreement,  her  deliveries  towards 
the  2,000,000  tons  per  month  being  2,055,227  tons 
in  August,  2,008,470  tons  in  September,  2,288,049 
tons  in  October,  1,912,696  tons  in  November, 
1,791,828  tons  in  December,  and  1,678,675  tons  in 
January  1921.  At  the  end  of  January  1921  the 
Spa  Agreement  lapsed,  and  since  that  time  Ger- 
many has  had  to  continue  her  coal  deliveries  with- 
out any  payment  or  advance  of  cash  in  return  for 
them.  To  make  up  for  the  accumulated  deficit 
under  the  Spa  Agreement,  the  Reparation  Com- 
mission called  for  2,200,000  tons  per  month  in 
February  and  March,  and  continued  to  demand 
this  figure  in  subsequent  months.  Like  so  much 
else,  however,  this  demand  was  only  on  paper. 
Germany  was  not  able  to  fulfil  it,  her  actual  deliv- 
eries during  the  next  six  months  amounting  to 
1,885,051  tons  in  February  1921,  1,419,654  tons  in 
March,  1,510,332  tons  in  April,  1,549,768  tons  in 
May,  1,453,761  tons  in  June,  and  1,899,132  tons  in 
July.    And  the  Reparation  Commission,  not  really 


48 


A  REVISION"  OF  THE  TREATY 


wanting  the  coal,  tacitly  acquiesced  in  these  quan- 
tities. During  the  first  half  of  1921  there  was,  in 
fact,  a  remarkable  reversal  of  the  situation  six 
months  earlier.  In  spite  of  the  British  Coal 
Strike,  France  and  Belgium,  having  replenished 
their  stocks  and  suffering  from  a  depression  in  the 
iron  and  steel  trades,  were  in  risk  of  being  glutted 
with  coal.  If  Germany  had  complied  with  the  full 
demands  of  the  Eeparation  Commission  the  recipi- 
ents would  not  have  known  what  to  do  with  the 
deliveries.  Even  as  it  was,  some  of  the  coal  re- 
ceived was  sold  to  exporters,  and  the  coal  miners 
of  France  and  Belgium  were  in  danger  of  short 
employment. 

The  statistics  of  the  aggregate  German  output 
of  pit  coal  are  now  as  follows,  exclusive  of  Alsace- 
Lorraine,  the  Saar,  and  the  Palatinate,  in  mil- 
lion tons: 


1913. 

1917. 

1918. 

1919. 

1920. 

1921    (first 
niue  months) 

Germany  exclusive 

of  Upper  Silesia 

130.19 

111.66 

109.54 

92.76 

99.66 

76.06 

Germany   inclusive 

of  Upper  Silesia 

173.62 

154.41 

148.19 

117.69 

131.35 

100.60 

Per    cent    of    1913 

output   

100 

88.9 

85.4 

67.8 

75.7 

77.2 

The  production  of  rough  lignite  (I  will  not 
risk  controversy  by  attempting  to  convert  this 
into  its  pit-coal  equivalent)  rose  from  87.1  mil- 


COAL  49 

lion  tons  in  1913  to  93.8  in  1919,  111.6  in  1920, 
and  90.8  in  the  first  three-quarters  of  1921. 

The  Spa  Agreement  supplied  a  temporary  pal- 
liative of  the  anomalous  conditions  governing  the 
price  at  which  these  coal  deliveries  are  credited  to 
Germany.  But  with  the  termination  of  this 
Agreement  they  again  require  attention.  Under 
the  Treaty  Germany  is  credited  in  the  case  of  coal 
delivered  overland  wath  "the  German  pithead 
price  to  German  nationals"  plus  the  freight  to 
the  frontier;  and  in  the  case  of  coal  delivered  by 
sea  with  the  export  price;  provided  in  each  case 
this  price  is  not  in  excess  of  the  British  export 
price.  Now  for  various  internal  reasons  the  Ger- 
man Government  have  thought  fit  to  maintain  the 
pithead  price  to  German  nationals  far  below  the 
world  price,  with  the  result  that  she  gets  credited 
with  much  less  than  its  real  value  for  her  deliv- 
eries of  Reparation  coal.  During  the  year  end- 
ing June  1921  the  average  legal  maximum  price 
of  the  different  kinds  of  coal  was  about  270  marks 
a  ton,  inclusive  of  a  tax  of  20  per  cent  on  the 
price,^  which  at  the  exchange  then  prevailing  was 
about  20s.,  i.e.,  between  a  third  and  a  half  of  the 
British  price  at  that  date.  The  fall  in  the  mark 
exchange  in  the  autumn  of  1921  increased  the  dis- 
crepancy.    For  although  the  price  of  German  coal 


*  This  very  valuable  tax,  first  imposed  in  1917,  yielded  in  1920- 
21  mks.  4V2  milliards. 


50  A  REVISION"  OF   THE  TREATY 

was  substaDtially  increased  in  terms  of  paper 
marks,  and  although  the  price  of  British  coal  had 
fallen  sharply,  the  movements  of  exchange  so  out- 
distanced the  other  factors,  that  in  November 
1921  the  price  of  British,  coal  worked  out  at  about 
three  and  half  times  the  price  of  the  best  bitumi- 
nous coal  from  the  Ruhr.  Thus  not  only  were  the 
German  iron-masters  placed  in  an  advantageous 
position  for  competing  with  British  producers,  but 
the  Belgian  and  French  industries  also  benefited 
artificially  through  the  receipt  by  their  Govern- 
ments of  very  low-priced  coal. 

The  German  Government  is  in  rather  a  dilemma 
in  this  matter.  An  increase  in  the  coal  tax  is  one 
of  the  most  obvious  sources  for  an  increased  reve- 
nue, and  such  a  tax  would  be,  from  the  standpoint 
of  the  exchequer,  twice  blessed,  since  it  would  in- 
crease correspondingly  the  Reparation  credits. 
But  on  the  other  hand,  such  a  proposal  unites  two 
groups  against  them,  the  industrialists,  who  want 
cheap  coal  for  industry  and  the  Socialists  who 
want  cheap  coal  for  the  domestic  stove.  From  the 
revenue  standpoint  the  tax  would  probably  stand 
an  increase  from  20  per  cent  to  60  per  cent;  but 
from  the  political  standpoint  an  increase  from  20 
per  cent  to  30  per  cent  is  the  highest  contemplated 
at  present,  with  a  differential  price  in  favor  of  do- 
mestic consumers.'^ 

'  Dr.  Wirth's  first  Government  prepared  a  Bill  to  raise  the  tax 
to  30  per  cent,  with  power,  however,  to  reduce  the  rate  tem- 


COAL  51 

I  take  this  opportunity  of  making  a  few  cor- 
rections or  amplifications  of  the  passages  in  The 
Economic  Consequences  of  the  Peace  which  deal 
with  coal. 

1.  The  fate  of  Upper  Silesia  is  highly  relevant 
to  some  of  the  conclusions  about  coal  in  Chapter 
IV  of  The  Economic  Consequences  of  the  Peace 
(pp.  77-84).  I  there  stated  that  "German  au- 
thorities claim,  not  without  contradiction,  that  to 
judge  from  the  votes  cast  at  elections,  one-third  of 
the  population  would  elect  in  the  Polish  interest, 
and  two-thirds  in  the  German,"  which  forecast 
turned  out  to  be  in  almost  exact  accordance  with 
the  facts.  I  also  urged  that,  unless  the  plebiscite 
went  in  a  way  which  I  did  not  expect,  the  indus- 
trial districts  ought  to  be  assigned  to  Germany. 
But  I  felt  no  confidence,  having  regard  to  the  pol- 
icy of  France,  that  this  would  be  done ;  and  I  al- 
lowed, therefore,  in  my  figures  for  the  possibility 
that  Germany  would  lose  this  area. 

The  actual  decision  of  the  Allies,  acting  on  the 
advice  of  the  Council  of  the  League  of  Nations  to 
whom  the  matter  had  been  referred,  which  we  have 
discussed  briefly  above  (pp.  12-14),  divides  the 
industrial  triangle  between  the  two  claimants  to 
it.  According  to  an  estimate  of  the  Prussian  Min- 
istry of  Trade  86  per  cent  of  the  total  coal  depos- 

porarily  to  25  per  cent.     It  was  estimatod  that  the  30  per  cent 
tax  would  bring  in  a  revenue  of  U.2  milliard  marks. 


52  A  REVISION  OF  THE   TREATY 

its  of  Upper  Silesia  fall  to  Poland,  leaving  14  per 
cent  to  Germany.  Germany  retains  a  somewhat 
larger  proportion  of  pits  in  actual  operation,  64 
per  cent  of  the  current  production  of  coal  falling 
to  Poland  and  36  per  cent  to  Germany.^ 

The  figure  of  100,000,000  tons,  given  in  The  Eco- 
nomic Consequences  of  the  Peace  for  the  net  Ger- 
man production  {i.e.,  deducting  consumption  at 
the  mines  themselves)  in  the  near  future  exclud- 
ing Upper  Silesia,  should,  therefore,  be  replaced 
by  the  figure  of  (say)  115,000,000  tons,  including 
such  part  of  Upper  Silesia  as  Germany  is  now  to 
retain. 

2.  I  beg  leave  to  correct  a  misleading  passage 
in  a  footnote  to  p.  79  of  The  Economic  Conse- 
quences of  the  Peace.  I  there  spoke  of  "Poland's 
pre-war  annual  demand"  for  coal,  where  I  should 
have  said  "pre-war  Poland's  pre-war  annual  de- 
mand.'* The  mistake  was  not  material,  as  I  al- 
lowed for  Germany's  diminished  requirements  for 
coal,  due  to  loss  of  territory,  in  the  body  of  the 
text.  But  I  confess  that  the  footnote,  as  pub- 
lished, might  be  deemed  misleading.    At  the  same 

*  The  same  authority  estimates  that  85.6  of  Upper  Silesia's 
zinc  ore  production  and  all  the  zinc  smelting  works  fall  to  Po- 
land. This  is  of  some  importance,  since  before  the  war  Upper 
Silesia  was  responsible  for  17  per  cent  of  the  total  world  pro- 
duction of  zinc.  Of  the  iron  and  steel  production  of  the  area  63 
per  cent  falls  to  Poland.  I  am  not  in  a  position  to  check  any  of 
these  figures.  Some  authorities  ascribe  a  higher  proportion  of 
the  coal  to  Poland. 


COAL  53 

time  it  is,  I  think,  a  tribute  to  the  general  ac- 
curacy of  The  Economic  Consequences  that  par- 
tizan  critics  should  have  fastened  so  greedily  on 
the  omission  of  the  word  '^ pre-war"  before  the 
word  '  *  Poland ' '  in  the  footnote  in  question.  Quite 
a  considerable  literature  has  grown  up  round  it. 
The  Polish  Diet  devoted  January  20,  1921,  to  the 
discussion  and  patriotic  analysis  of  this  footnote, 
and  concluded  with  a  Resolution  ordering  the 
chief  speech  of  the  occasion  (that  of  Deputy  A. 
Wierzlicki)  to  be  published  throughout  the  world 
in  several  languages  at  the  expense  of  the  State. 
I  apologize  for  any  depreciation  in  the  Polish 
mark  for  which  I  may  have  been  so  inadvertently 
responsible.  Mr.  Wierzlicki  begins:  ''A  book  ap- 
peared by  Keynes  .  .  .  the  author  of  a  well-known 
work  on  India,  that  pearl  of  the  English  crown, 
that  land  which  is  a  beloved  subject  of  study  to 
the  English.  Through  such  studies  a  man  may 
win  himself  name  and  fame," — which  was  cer- 
tainly a  little  unscrupulous  of  me.  And  he  con- 
cludes: **But  England  too  must  believe  in  facts! 
And  if  Keynes,  whose  book  is  impregnated  with 
a  humanitarian  spirit  and  with  understanding  of 
the  necessity  to  get  up  beyond  selfish  interests,  if 
Keynes  is  convinced  by  actual  data  that  he  has 
done  a  wrong,  that  he  has  wrought  confusion  in 
the  ideas  of  statesmen  and  politicians  as  regards 
Upper  Silesia,  then  he  too  will  see  with  his  eyes 


54  A  REVISION  OF   THE  TREATY 

and  must  become  the  friend  of  Poland,  of  Poland 
as  an  active  factor  in  the  development  of  the  nat- 
ural wealth  of  Silesia."  I  owe  it  to  so  generous 
and  eloquent  a  critic  to  quote  the  corrected  fig- 
ures, which  are  as  follows :  the  Polish  lands,  united 
by  the  Peace  Treaty  into  the  new  Polish  State, 
consumed  in  1913  19,445,000  tons  of  coal,  of  which 
8,989,000  tons  were  produced  within  that  area  and 
7,370,000  tons  were  imported  from  Upper  Silesia 
(the  total  production  of  Upper  Silesia  in  that  year 
being  43,800,000  tons)/  The  Silesian  Plebiscite 
has  been  preceded  and  followed  by  a  mass  of 
propagandist  literature  on  both  sides.  For  the 
economic  questions  involved  see,  particularly,  on 
the  Polish  side:  Wierzlicki,  The  Truth  about 
Upper  Silesia;  Olszewski,  Upper  Silesia,  Her  In- 
fluence on  the  Solvability  and  on  the  Economic 
Life  of  Germany,  and  The  Economic  Value  of 
Upper  Silesia  for  Poland  and  Germany  respec- 
tively; and  on  the  German  side:  Sidney  Osborne, 
The  Upper  Silesian  Question  and  Germany's  Coal 
Problem,  The  Problem  of  Upper  Silesia  (papers 
by  various  authors,  not  all  on  the  German  side, 
with  excellent  maps,  edited  by  Sidney  Osborne), 
various  pamphlets  by  Professor  Schulz-Gavernitz, 

*  These  are  the  figures  according  to  the  Polish  authorities.  But 
It  is  difficult  to  obtain  accurate  pre-war  figures  for  an  area  which 
was  not  coterminous  with  any  then  existing  State;  and  these 
totals  have  been  questioned  in  detail  by  Dr.  W.  Schotte. 


COAL  55 

and  documents  circulated  by  the  Breslau  Chamber 
of  Commerce. 

3.  My  observations  on  Germany's  capacity  to 
deliver  reparation  coal  have  been  criticized  in 
some  quarters  ^  on  the  ground  that  I  made  insuf- 
ficient allowance  for  the  compensation  which  is 
available  to  her  by  the  more  intensive  exploita- 
tion of  her  deposits  of  lignite  or  brown  coal.  This 
criticism  is  scarcely  fair,  because  I  was  the  first 
in  popular  controversy  to  call  attention  to  the  fac- 
tor of  lignite,  and  because  I  was  careful  from  the 
outset  to  disclaim  expert  knowledge  of  the  sub- 
ject.^ I  still  find  it  difficult,  in  the  face  of  conflict- 
ing expert  opinions,  to  know  how  much  importance 
to  attach  to  this  material.  Since  the  Armistice 
there  has  been  a  substantial  increase  in  output, 
which  was  36  per  cent  higher  in  the  first  half  of 
1921  than  in  1913.^  In  view  of  the  acute  shortage 
of  coal  this  output  must  have  been  of  material 

'  See  e.g.,  my  controversy  with  M.  Brcnier  in  The  Times. 

'In  The  Ecoyiomic  Consequences  of  the  Peace,  p.  92  w.,  I  wrote 
as  follows:  "The  reader  must  be  reminded  in  particular  that  tho 
above  calculations  take  no  account  of  the  German  production  of 
lignite.  ...  I  am  not  competent  to  speak  on  the  extent  to  which 
the  loss  of  coal  can  be  made  good  by  the  extended  use  of  lignite 
or  by  economies  in  its  present  emplojTncnt;  but  some  authorities 
believe  that  Germany  may  obtain  substantial  compensation  for  her 
loss  of  coal  by  paying  more  attention  to  her  deposits  of  lignite." 

*  That  is  to  say,  production  in  the  middle  of  1921  was  at  the 
rate  of  about  120,000,000  tons  per  annum.  At  that  time  the  legal 
maximum  price  was  GO  paper  marks  per  ton  (i.e.,  5s.  or  less)  ;  so 
that  the  national  profit  on  the  output  in  terms  of  money  cannot 
have  been  a  very  material  amount. 


56  A  REVISION"  OF  THE   TREATY 

assistance  towards  meeting  the  situation.  The 
deposits  are  near  the  surface,  and  no  great  amount 
of  capital  or  machinery  is  needed  for  its  produc- 
tion. But  lignite  briquette  is  a  substitute  for  coal 
for  certain  purposes  only,  and  the  evidence  is  con- 
flicting as  to  whether  any  further  material  ex- 
pansion is  economically  practicable.^ 

The  process  of  briquetting  the  rough  lignite  is 
probably  a  wasteful  one,  and  it  is  doubtful  whether 
it  would  be  worth  while  to  set  up  new  plant  with 
a  view  to  production  on  a  larger  scale.  Some 
authorities  hold  that  the  real  future  of  lignite  and 
its  value  as  an  element  in  the  future  wealth  of 
Germany  lie  in  improved  methods  of  distillation 
(the  chief  obstacle  to  which,  as  also  to  other  uses, 
lies  in  its  high  water  content),  by  which  the  vari- 
ous oils,  ammonia  and  benzine,  latent  in  it  can  be 
released  for  commercial  uses. 

It  is  certainly  the  case  that  the  future  possibil- 
ities of  lignite  should  not  be  overlooked.  But 
there  is  a  tendency  at  present,  just  as  was  the  case 
with  potash  some  little  time  ago,  to  exaggerate  its 
importance  greatly  as  a  decisive  factor  in  the 
wealth-producing  capacity  of  Germany. 

*  In  order  to  secure  the  increased  output  the  number  of  miners 
was  increased  much  more  than  in  proportion,  namely  from  59,000 
in  1913  to  171,000  in  the  first  half  of  1921.  As  a  result,  the  cost 
of  production  of  lignite  rose  much  faster  than  that  of  coal.  Also 
since  its  calorific  value  is  much  less  than  that  of  coal  per  unit  of 
weight  (even  when  it  is  briquetted),  it  can  only  compete  with 
coal,  unless  it  is  assisted  by  preferential  freight  fates,  within  a 
limited  area  in  the  neighborhood  of  the  mineg. 


LEGALITY  OF  OCCUPYING  GERMANY  57 

EXCURSUS  II 

THE  LEGALITY  OF   OCCUPYING  GERMANY   EAST  OF  THE 

RHINE 

The  years  1920  and  1921  have  been  filled  with 
excursions  and  with  threats  of  excursions  by  the 
French  Army  into  Germany  east  of  the  Rhine. 
In  March  1920  France,  without  the  approval  of 
her  Allies,  occupied  Frankfort  and  Darmstadt. 
In  July  1920  a  threat  to  invade  Germany  by  the 
Allies  as  a  whole  was  successful  in  enforcing  the 
Spa  Agreement.  In  March  1921  a  similar  threat 
was  unsuccessful  in  securing  assent  to  the  Paris 
Decisions,  and  Duisberg,  Ruhrort,  and  Diisseldorf 
were  occupied  accordingly.  In  spite  of  the  ob- 
jections of  her  Allies  France  continued  this  occu- 
pation when,  by  the  acceptance  of  the  second  Ulti- 
matum of  London,  the  original  occasion  for  it  had 
disappeared,  on  tlie  ground  that  so  long  as  the 
Upper  Silesian  question  was  unsettled,  it  was  in 
the  opinion  of  Marshal  Foch  just  as  well  to  retain 
this  hold.^  In  April  1921  the  French  Government 
announced  their  intention  of  occupying  the  Ruhr, 
though  they  were  prevented  from  carrying  this 
out  by  the  pressure  of  the  other  Allies.    In  May 

*  At  the  Paris  Conference  of  August  1921  Lord  Curzon  tried 
nnavailingly  to  persuade  France  to  abandon  this  illegal  occupa- 
tion. The  so-called  "Economic  Sanctions"  were  raised  on  October 
1,  15)21.  The  occupation  still  continues,  though  both  the  above 
pretexts  have  now  disappeared. 


58  A  REVISION   OF  THE  TREATY 

1921  the  Second  Ultimatum  of  London  was  suc- 
cessfully enforced  by  a  threat  to  occupy  the  Ruhr 
Valley.  Thus,  within  the  space  of  little  more  than 
a  year  the  invasion  of  Germany,  beyond  the  Rhine, 
was  threatened  five  times  and  actually  carried  out 
twice. 

We  are  supposed  to  be  at  peace  with  Germany, 
and  the  invasion  of  a  country  in  time  of  peace  is 
an  irregular  act,  even  when  the  invaded  country  is 
not  in  a  position  to  resist.  We  are  also  bound  by 
our  adhesion  to  the  League  of  Nations  to  avoid 
such  action.  It  is,  however,  the  contention  of 
France,  and  apparently,  from  time  to  time,  that  of 
the  British  Government  also,  that  these  acts  are 
in  some  way  permissible  under  the  Treaty  of  Ver- 
sailles, whenever  Germany  is  in  technical  default 
in  regard  to  any  part  of  the  Treaty,  that  is  to  say, 
since  some  parts  of  the  Treaty  are  incapable  of 
literal  fulfilment,  at  any  time.  In  particular  the 
French  Government  maintained  in  April  1921  that 
so  long  as  Germany  possessed  any  tangible  assets 
capable  of  being  handed  over,  she  was  in  volun- 
tary default  in  respect  of  Reparation,  and  that  if 
she  was  in  voluntary  default  any  Ally  was  entitled 
to  invade  and  pillage  her  territory  without  being 
guilty  of  an  act  of  war.  In  the  previous  month 
the  Allies  as  a  whole  had  argued  that  default  under 
Chapters  of  the  Treaty,  other  than  the  Reparation 
Chapter,  also  justified  invasion. 


LEGALITY  OF  OCCUPYING   GERMANY  59 

Though  the  respect  shown  for  legality  is  now 
very  small,  the  legal  position  under  the  Treaty 
deserves  nevertheless  an  exact  examination. 

The  Treaty  of  Versailles  expressly  provides  for 
breaches  by  Germany  of  the  Reparation  Chapter. 
It  contains  no  special  provision  for  breaches  of 
other  Chapters,  and  such  breaches  are,  therefore, 
in  exactly  the  same  position  as  breaches  of  any 
other  Treaty.  Accordingly,  I  will  discuss  sepa- 
rately default  in  respect  of  Reparation,  and  other 
defaults. 

Sections  17  and  18  of  the  Reparation  Chapter, 
Annex  II.  run  as  follows : 

''(17)  In  case  of  default  by  Germany  in  the 
performance  of  any  obligation  under  this  part  of 
the  present  Treaty,  the  Commission  will  forthwith 
give  notice  of  such  default  to  each  of  the  inter- 
ested Powers,  and  will  make  such  recommenda- 
tions as  to  the  action  to  be  taken  in  consequence  of 
such  default  as  it  may  think  necessary. 

*'(18)  The  measures  which  the  Allied  and  As- 
sociated Powers  shall  have  the  right  to  take  in 
case  of  voluntary  default  by  Germany,  and  which 
Germany  agrees  not  to  regard  as  acts  of  war,  may 
include  economic  and  financial  prohibitions  and  re- 
prisals, and  in  general  such  other  measures  as  the 
respective  Governments  may  determine  to  be  nec- 
essary in  the  circumstances." 

There  is  also  a  provision  in  Article  430  of  the 


60  A   REVISION   OF   THE   TREATY 

Treaty,  by  which  any  part  of  the  occupied  area 
which  has  been  evacuated  may  be  reoccupied  if 
Germany  fails  to  observe  her  obligations  with  re- 
gard to  Reparation. 

The  French  Government  base  their  contention 
on  the  words  "and  in  general  such  other  meas- 
ures" in  §  18,  arguing  that  this  gives  them  an  en- 
tirely free  hand.  The  sentence  taken  as  a  whole, 
however,  supports,  on  the  principle  of  ejusdem 
generis,  the  interpretation  that  the  other  measures 
contemplated  are  of  the  nature  of  economic  and 
financial  reprisals.  This  view  is  confirmed  by  the 
fact  that  the  rest  of  the  Treaty  narrowly  limits 
the  rights  of  occupying  German  territory,  which, 
as  M.  Tardieu's  book  shows,  was  the  subject  of 
an  acute  difference  of  opinion  between  France  and 
her  Associates  at  the  Peace  Conference.  There 
is  no  provision  for  occupying  territory  on  the 
rigid  bank  of  the  Rhine;  and  the  only  provision 
for  occupation  in  the  event  of  default  is  that  con- 
tained in  Article  430.  This  Article,  which  pro- 
vides for  reoccupation  of  the  left  bank  in  the  event 
of  default,  would  have  been  entirely  pointless  and 
otiose  if  the  French  view  were  correct.  Indeed 
the  theory,  that  at  any  time  during  the  next  thirty 
years  any  Ally  can  invade  any  part  of  Germany 
on  the  ground  that  Germany  has  not  fulfilled  every 
letter  of  the  Treaty,  is  on  the  face  of  it  unrea- 
sonable. 


LEGALITY  OF  OCCUPYING  GERMANY  61 

In  any  case,  however,  §§  17,  18  of  Annex  II.  of 
the  Reparation  Chapter  only  operate  after  a  spe- 
cific procedure  has  been  set  on  foot  by  the  Repa- 
ration Commission.  It  is  the  duty  of  the  Repara- 
tion Commission  to  give  notice  of  the  default  to 
each  of  the  interested  Powers,  including  presum- 
ably the  United  States,  and  to  recommend  action. 
If  the  default  is  voluntary— there  is  no  provision 
as  to  who  is  to  decide  this — then  the  paragraphs 
in  question  become  operative.  There  is  no  war- 
rant here  for  isolated  action  by  a  single  Ally. 
And  indeed  the  Reparation  Commission  have 
never  so  far  put  this  procedure  in  operation. 

If,  on  the  other  hand,  Germany  is  alleged  to  be 
in  default  under  some  other  Chapter  of  the 
Treaty,  then  the  Allies  have  no  recourse  except 
to  the  League  of  Nations;  and  they  are  bound  to 
bring  into  operation  Article  17  of  the  Covenant, 
wiiich  provides  for  the  case  of  a  dispute  between 
a  member  of  the  League  and  a  non-member.  That 
is  to  sa}^  apart  from  procedure  by  the  Reparation 
Commission  as  set  forth  above,  breaches  or  al- 
leged breaches  of  this  Treaty  are  in  precisely  the 
same  position  as  breaches  of  any  other  treaty  be- 
tween two  Powers  which  are  at  peace. 

According  to  Article  17,  in  the  event  of  a  dis- 
pute between  a  member  of  the  League  and  a  State 
which  is  not  a  member  of  the  Longue,  the  latter 
"shall  be  invited  to  accept  the  obligations  of  mem- 


62  A  REVISION   OF   THE  TREATY 

bership  in  the  League  for  the  purposes  of  such 
dispute,  upon  such  conditions  as  the  Council  may- 
deem  just.  If  such  invitation  is  accepted,  the 
provisions  of  Articles  12  to  16  inclusive  shall  be 
applied,  with  such  modifications  as  may  be  deemed 
necessary  by  the  Council.  Upon  such  invitation 
being  given,  the  Council  shall  immediately  insti- 
tute an  inquiry  into  the  circumstances  of  the  dis- 
pute, and  recommend  such  action  as  may  seem 
best  and  most  effectual  in  the  circumstances." 

Articles  12  to  16  provide,  amongst  other  things, 
for  arbitration  in  any  case  of  "disputes  as  to 
the  interpretation  of  a  Treaty;  as  to  any  ques- 
tion of  international  law;  as  to  the  existence  of 
any  fact  which,  if  established,  would  constitute 
a  breach  of  any  international  obligation ;  or  as  to 
the  extent  and  nature  of  the  reparation  to  be  made 
for  any  such  breach." 

The  Allies  as  signatories  of  the  Treaty  and  of 
the  Covenant  are  therefore  absolutely  precluded 
in  the  event  of  a  breach  or  alleged  breach  by  Ger- 
many of  the  Treaty,  from  proceeding  except 
under  the  power  given  to  the  Reparation  Com- 
mission as  stated  above,  or  under  Article  17  of 
the  Covenant.  Any  other  act  on  their  part  is  il- 
legal. 

In  any  case  it  is  obligatory  on  the  Council  of  the 
League,  under  Article  17,  to  invite  Germany,  in 
the  event  of  a  dispute  between  Germany  and  the 


LEGALITY  OF   OCCUPYING  GERMANY  63 

Allies,  to  accept  the  obligations  of  membership 
ill  the  League  for  the  purposes  of  such  dispute, 
and  to  institute  immediately  an  inquiry  into  the 
circumstances  of  the  dispute. 

In  my  opinion  the  protest  addressed  by  the  Ger- 
man Government  to  the  Council  of  the  League  of 
Nations  in  March  1921  was  correctly  argued. 
But,  as  with  the  inclusion  of  pensions  in  the  Repa- 
ration Bill,  we  reserve  the  whole  stock  of  our  in- 
dignation over  illegality  between  nations  for  the 
occasions  when  it  is  the  fault  of  others.  I  am 
told  that  to  object  to  this  is  to  overlook  ''the  hu- 
man element"  and  is  therefore  both  wrong  and 
foolish. 


CHAPTER  in 

The  Bukden  of  the  London  Settlement 

The  settlement  of  Reparations  communicated  to 
Germany  by  the  Allied  Powers  on  May  5,  1921, 
and  accepted  a  few  days  later,  constitutes  the 
definitive  scheme  under  the  Treaty  according  to 
which  Germany  for  the  next  two  generations  is 
to  discharge  her  liabilities/  It  will  not  endure. 
But  it  is  the  fait  accompli  of  the  hour,  and,  there- 
fore, deserves  examination.^ 

The  settlement  falls  into  three  parts  compris- 
ing (1)  provisions  for  the  delivery  of  Bonds;  (2) 
provisions  for  setting  up  in  Berlin  an  Allied  Com- 
mittee of  Guarantees;  (3)  provisions  for  actual 
payment  in  cash  and  kind. 

1.  The  Delivery  of  Bonds. — These  provisions 
are  the  latest  variant  of  similar  provisions  in  the 
Treaty  itself.    Allied  Finance  Ministers  have  en- 

'  The  preamble  states  that  the  settlement  is  "in  accordance 
with  Article  233  of  the  Treaty  of  Versailles."  This  Article  pre- 
scribes that  the  scheme  of  payments  shall  provide  for  the  dis- 
charge of  the  liabilities  within  thirty  years,  any  unpaid  balance 
at  the  end  of  this  period  being  "postponed"  or  "liandled  other- 
wise." In  the  actual  settlement,  however,  the  initial  limitation 
to  thirty  years  has  been  neglected. 

*  This  actual  text  is  printed  below  in  full,  Appendix  No.  7. 

64 


BURDEX   OF  THE  LONDON  SETTLEMENT         65 

couragcd  themselves  (or  their  constituents)  "with 
the  hope  that  some  part  of  the  capital  sum  of 
Germany's  liabilities  might  be  anticipated  by  the 
sale  to  private  investors  of  Bonds  secured  on  fu- 
ture Reparation  payments.  For  this  purpose  it 
was  necessary  that  Germany  should  deliver  nego- 
tiable Bonds.  These  Bonds  do  not  constitute  any 
additional  burden  on  Germany.  They  are  simply 
documents  constituting  a  title  to  the  sums  which, 
under  other  clauses,  Germany  is  to  pay  over  an- 
nually to  the  Reparation  Commission. 

The  advantages  to  the  Allies  of  marketing  such 
Bonds  are  obvious.  If  they  could  get  rid  of  the 
Bonds  they  would  have  thrown  the  risk  of  Ger- 
many's default  on  to  others;  they  would  have 
interested  a  great  number  of  people  all  over  the 
world  in  Germany's  not  defaulting;  and  they 
would  have  secured  the  actual  cash  which  the  ex- 
igencies of  their  Budgets  demand.  But  the  hope 
is  illusory.  When  at  last  a  real  settlement  is 
made,  it  may  be  practicable  for  the  German  Gov- 
ernment to  float  an  international  loan  of  moder- 
ate amount,  well  within  the  world's  estimate  of 
their  minimum  capacity  of  paj'-ment.  But,  though 
there  are  foolish  investors  in  the  world,  it  would 
be  sanguine  to  believe  that  there  are  so  many  of 
such  folly  as  to  swallow  at  this  moment  on  these 
lines  a  loan  of  vast  dimensions.  It  costs  France 
at  the  present  time  somewhere  about  10  per  cent 


66'  A  EEVISION"  OF   THE  TREATY 

to  float  a  loan  of  modest  dimensions  on  the  New 
York  market.  As  the  proposed  German  Bonds 
will  carry  5  per  cent  interest  and  1  per  cent  sink- 
ing fund,  it  would  be  necessary  to  reduce  their 
price  to  57  before  they  would  yield  10  per  cent 
including  redemption.  It  would  be  very  optimis- 
tic, therefore,  to  expect  to  market  them  at  above 
half  their  par  value.  Even  so,  the  world  is  not 
likely  to  invest  in  them  any  large  proportion  of 
its  current  savings,  so  that  the  whole  amount  even 
of  the  A  Bonds,  specified  below,  could  not  be  mar- 
keted at  this  price.  Moreover,  in  so  far  as  the 
service  of  the  Bonds  marketed  is  within  the  minu 
mum  expectation  of  Germany's  capacity  to  pay 
(as  it  would  have  to  be),  the  financial  effect  on 
the  Ally  which  markets  the  Bonds  is  nearly  the 
same  as  though  they  were  to  borrow  themselves  at 
the  rate  in  question.  Except,  therefore,  in  the 
case  of  those  Allies  whose  credit  is  inferior  to 
Germany's,  the  advantage  compared  with  borrow- 
ing on  their  own  credit  would  not  be  very  ma- 
terial.^ 

The  details  relating  to  the  Bonds  are  not  likely, 
therefore,  to  be  operative,  and  need  not  be  taken 
very  seriously.     They  are  really  a  relic  of  the 

*  It  is  not  competent  for  a  single  Ally  (e.g.,  Portugal)  to  claim 
its  share  of  tlie  Bonds  and  market  them  at  the  best  price  obtain- 
able. Under  the  Treaty  of  Versailles  Part  VIII.  Annex  II.  13  (b) 
questions  relating  to  the  marketing  of  those  Bonds  can  only  be 
settled  by  unanimous  decision  of  the  Reparation  Commiasion. 


BURDEN  OF  THE  LONDON   SETTLEMENT        67 

pretenses  of  the  Peace  Conference  days.  Briefly, 
the  arrangements  are  as  follows : 

Germany  must  deliver  12  milliards  of  gold 
marks  ($3,000,000,000)  in  A  Bonds,  38  milliards 
($9,500,000,000)  in  B  Bonds,  and  the  balance  of 
her  liabilities,  provisionally  estimated  at  82  mil- 
liards ($20,500,000,000),  in  C  Bonds.  All  the 
Bonds  carry  5  per  cent  interest  and  1  per  cent 
cumulative  sinking  fund.  The  services  of  the  se- 
ries A,  B,  and  C  constitute  respectively  a  first, 
second,  and  third  charge  on  the  available  funds. 
The  A  Bonds  are  issued  to  the  Reparation  Com- 
mission as  from  May  1,  1921,  and  the  B  Bonds  as 
from  November  1, 1921,  but  the  C  Bonds  shall  not 
be  issued  (and  shall  not  carry  interest  in  the  mean- 
time) except  as  and  when  the  Reparation  Com- 
mission is  of  the  opinion  that  the  payments  which 
Germany  is  making  under  the  new  settlement  are 
adequate  to  provide  their  service. 

It  may  be  noticed  that  the  service  of  the  A  Bonds 
will  cost  $180,000,000  per  annum,  a  sum  well  within 
Germany's  capacity,  and  the  service  of  the  B 
Bonds  will  cost  $570,000,000  per  annum,  making 
$750,000,000  altogether,  a  sum  in  excess  of  my 
own  expectations  of  what  is  practicable,  but  not 
in  excess  of  the  figure  at  which  some  independent 
experts,  whose  opinion  deserves  respect,  have  es- 
timated Germany's  probable  capacity  to  pay.  It 
may  also  be  noticed  that  the  aggregate  face  value 


68  A  REVISION  OF  THE  TEEATY 

of  the  A  and  B  Bonds  ($12,500,000,000)  cor- 
responds to  the  figure  at  which  the  German  Gov- 
ernment have  agreed  (in  their  counter-proposal 
transmitted  to  the  United  States)  that  their  ag- 
gregate liability  might  be  assessed.  It  is  prob- 
able that,  sooner  or  later,  the  C  Bonds  at  any  rate 
will  be  not  only  postponed,  but  canceled. 

2.  The  Committee  of  Guarantees. — This  new 
body,  which  is  to  have  a  permanent  office  in  Ber- 
lin, is  in  form  and  status  a  sub-commission  of  the 
Eeparation  Commission.  Its  members  consist  of 
representatives  of  the  Allies  represented  on  the 
Reparation  Commission,  with  a  representative  of 
the  United  States,  if  that  country  consents  to 
nominate.^  To  it  are  assigned  the  various  wide 
and  indefinite  powers  accorded  by  the  Treaty  of 
Peace  to  the  Reparation  Commission,  for  the  gen- 
eral control  and  supervision  of  Germany's  finan- 
cial system.  But  its  exact  functions,  in  practice 
and  in  detail,  are  still  obscure. 

According  to  the  letter  of  its  constitution  the 
Committee  might  embark  on  difficult  and  danger- 
ous functions.  Accounts  are  to  be  opened  in  the 
name  of  the  Committee,  to  which  will  be  paid  over 
in  gold  or  foreign  currency  the  proceeds  of  the 
German  Customs,  26  per  cent  of  the  value  of  all 
exports  and  the  proceeds  of  any  other  taxes  which 

^  The  Committee  is  to  coopt  three  representatives  of  neutrals 
when  a  sufficient  proportion  of  the  Bonds  to  justify  their  repre- 
sentation has  been  marketed  on  neutral  Stock  Exchanges. 


BURDEN   OF  THE  LONDON  SETTLEMENT        69 

may  be  assigned  as  a  "guarantee"  for  the  pay- 
ment of  Reparation.  These  receipts,  however, 
chiefly  accrue  not  in  gold  or  foreign  currency,  but 
in  paper  marks.  If  the  Committee  attempts  to 
regulate  the  conversion  of  these  paper  marks  into 
foreign  currencies,  it  will  in  effect  become  re- 
sponsible for  the  foreign  exchange  policy  of  Ger- 
many, which  it  would  be  much  more  prudent  to 
leave  alone.  If  not,  it  is  difficult  to  see  what  the 
"guarantees"  really  add  to  the  other  provisions 
by  which  Germany  binds  herself  to  make  payments 
in  foreign  money. 

I  suspect  that  the  only  real  and  useful  purpose 
of  the  Committee  of  Guarantees  is  as  an  office  of 
the  Reparation  Commission  iji  Berlin,  a  highly 
necessary  adjunct;  and  the  clause  about  "guar- 
antees" is  merely  one  more  of  the  pretenses, 
which,  in  all  these  agreements,  the  requirements  of 
politics  intermingle  with  the  provisions  of  finance. 
It  is  usual,  particularly  in  France,  to  talk  much 
about  "guarantees,"  by  which  is  meant,  appar- 
ently, some  device  for  making  sure  that  the  im- 
possible will  occur.  A  "guarantee"  is  not  the 
same  thing  as  a  "sanction."  When  M.  Briand 
is  accused  of  weakness  at  the  Second  Conference 
of  London  and  of  abandoning  France's  "real 
guarantees,"  these  provisions  enable  him  to  re- 
pudiate the  charge  indignantly.  He  can  point  out 
that  the  Second  Conference  of  London  not  only 


,70  A  REVISION   OF   THE  TREATY 

set  up  a  Committee  of  Guarantees  but  secured,  as 
a  new  and  additional  guarantee,  the  German  Cus- 
toms.    There  is  no  answer  to  that !  ^ 

3.  The  Provisions  for  Payment  in  Cash  and 
Kind. — The  Bonds  and  the  Guarantees  are  ap- 
paratus and  incantation.  We  come  now  to  the 
solid  part  of  the  settlement,  the  provisions  for 
payment. 

Germany  is  to  pay  in  each  year,  until  her  ag- 
gregate liability  is  discharged : 

(1)  Two  milliard  gold  marks. 

(2)  A  sum  equivalent  to  26  per  cent  of  the  value 
of  her  exports,  or  alternatively  an  equivalent 
amount  as  fixed  in  accordance  with  any  other  in- 
dex proposed  by  Germany  and  accepted  by  the 
Commission. 

(1)  is  to  be  paid  quarterly  on  January  15,  April 
15,  July  15,  and  October  15  of  each  year,  and  (2) 
is  to  be  paid  quarterly  on  February  15,  May  15, 
August  15,  and  November  15  of  each  year. 

This  sum,  calculated  on  any  reasonable  estimate 
of  the  future  value  of  German  exports,  is  mate- 
rially less  than  the  original  demands  of  the 
Treaty.  Germany's  total  liability  under  the 
Treaty  amounts  to  138  milliard  gold  marks  (inclu- 
sive of  the  liability  for  Belgian  debt).    At  5  per 

*  And  it  really  is  an  adequate  rejoinder  to  deputies  like  M. 
Forgeot.  If  a  partisan  or  a  child  wants  a  silly,  harmful  thing,  it 
may  be  better  to  meet  him  with  a  silly,  harmless  thing,  than 
with  explanations  he  cannot  understand.  This  is  the  traditional 
wisdom  of  statesmen  and  nursemaids. 


BURDEN   OF   THE  LONDON  SETTLEMENT        71 

cent  interest  and  1  per  cent  sinlving  fund,  the  an- 
nual charge  on  this  would  be  8.28  milliard  gold 
marks.  Under  the  new  scheme  the  annual  value 
of  Germany's  exports  would  have  to  rise  to  the 
improbable  figure  of  24  milliard  gold  marks  be- 
fore she  would  be  liable  for  so  much  as  this.  As 
we  shall  see  below,  the  probable  burden  of  the 
new  settlement  in  the  near  future  is  probably  not 
much  more  than  half  that  of  the  Treaty. 

There  is  another  important  respect  in  which 
the  demands  of  the  Treaty  are  much  abated.  The 
Treaty  included  a  crushing  provision  by  which 
the  part  of  Germany's  nominal  liability  on  which 
she  was  not  able  to  pay  interest  in  the  early  years 
was  to  accumulate  at  compound  interest.^  There 
is  no  such  provision  in  the  new  scheme;  the  C 
Bonds  are  not  to  carry  interest  until  the  receipts 
from  Germany  are  adequate  to  meet  their  service ; 
and  the  only  provision  relating  to  back  interest 
is  for  the  payment  of  simple  interest  in  the  event 
of  there  being  a  surplus  out  of  the  receipts. 

In  order  to  understand  how  great  an  advance 
this  settlement  represented  it  is  necessary  to  carry 
our  minds  back  to  the  ideas  which  were  prevalent 
not  very  long  ago.  The  following  table  is  inter- 
esting, in  which,  in  order  to  reduce  capital  sums 
and  annual  payments  to  a  common  basis  of  com- 
parison, estimates  in  terms  of  capital  sums  are 

'  The  effect  of  this  provision  is  discussed  in  The  Economic  Con- 
sequences of  the  Peace,  pp.  165-167. 


72  A  EEVISION  OF  THE  TREATY 

replaced   by  annuities   of   6  per   cent   of   their 
amount : 

In  terms  of  Annuities 
Estimates  of  expressed  in  Milliards 

of  Gold  Marks. 

1.  Lord  Cunliffe  and  the  figure  given 

out  in  the  British  General  Elec- 
tion of  1918  1 28.8 

2.  M.  Klotz's  forecast  in  the  French 

Chamber,  September  5,  1919...       18 

3.  The  Assessment  of  the  Reparation 

Commission,  April  1921 8.28 

4.  The  London  Settlement,  May  1921     4.6  2 

The  estimate  of  The  Economic  Consequences  of 
the  Peace  (1919),  namely  2  milliards,  was  nearly 
contemporaneous  with  M.  Klotz's  figure  of  18  mil- 
liards. M.  Tardieu  recalls  that,  when  the  Peace 
Conference  was  considering  whether  a  definite  fig- 
ure could  be  inserted  in  the  Treaty,  the  lowest 
figure  which  the  British  and  French  Prime  Min- 
isters would  accept,  as  a  compromise  to  meet  the 
pressure  put  upon  them  by  the  American  repre- 
sentatives, corresponded  to  an  annuity  of  10.8 
milliards,^  which  is  nearly  two  and  a  half  times 
the  figure  which  they  accepted  two  years  later 
under  the  pressure,  not  of  Americans,  but  of  facts. 

There  was  yet  another  feature  in  the  London 

*  Cf.  Barucli,  The  Making  of  the  Reparation  and  Economic  Sec- 
tions of  the  Treaty,  p.  46;  and  Lamont,  What  Really  Happened 
at  Paris,  p.  275. 

'  Assuming  exports  of  10  milliards,  which  is  double  the  actual 
figure  of  1920. 

•  The  Truth  about  the  Treaty,  p.  305. 


BUEDEN   OF   THE  LONDON  SETTLEMENT        73 

Settlement  wlncli  recommended  it  to  moderate 
opinion.  The  dates  of  payment  were  so  arranged 
as  to  reduce  the  burden  on  Germany  during  the 
first  year.  The  Reparation  year  runs  from  May  1 
in  each  year  to  April  30  in  the  next;  but  in  the 
period  May  1,  1921-April  30,  1922  only  two,  in- 
stead of  four,  of  the  quarterly  payments  in  re- 
spect of  the  export  proportion  will  fall  due. 

No  wonder,  therefore,  that  this  settlement,  so 
reasonable  in  itself  compared  with  what  had  pre- 
ceded it,  was  generally  approved  and  widely  ac-. 
cepted  as  a  real  and  permanent  solution.  But  in 
spite  of  its  importance  for  the  time  being,  as  a 
preservative  of  peace,  as  affording  a  breathing 
space,  and  as  a  transition  from  foolish  expecta- 
tions, it  cannot  be  a  permanent  solution.  It  is, 
like  all  its  predecessors,  a  temporizing  measure, 
which  is  bound  to  need  amendment. 

To  calculate  the  total  burden,  it  is  necessary  to 
estimate  the  value  of  German  exports.  In  1920 
they  amounted  to  about  5  milliard  gold  marks.  In 
1921  the  volume  w^ll  be  greater,  but  this  will  be 
offset  by  the  fact  that  gold  prices  have  fallen  to 
less  than  two-thirds  of  what  they  were,  so  that  4 
to  5  milliard  gold  marks  is  quite  high  enough  as 
a  preliminary  forecast  for  the  year  conomencing 
May  1, 1921.^    It  is,  of  course,  impossible  to  make 

'  Exports  for  the  six  montha  May-Octobor  1021  wer(>  valued  at 
about  40  miliiarii  paper  marks  (excluaive,  I  think,  of  deliveries  of 


74  A  REVISION"  OF  THE  TREATY 

a  close  estimate  for  later  years.  The  figures  will 
depend,  not  only  on  tlie  recovery  of  Germany,  but 
on  the  state  of  international  trade  generally,  and 
more  especially  on  the  level  of  gold  prices.^  For 
the  next  two  or  three  years,  if  we  are  to  make  an 
estimate  at  all,  6  to  10  milliards  is,  in  my  judg- 
ment, the  best  one  can  make. 

Twenty-six  per  cent  of  exports,  valued  at  6  mil- 
liards gold,  will  amount  to  about  1%  milliard  gold 
marks,  making,  w^ith  the  fixed  annual  payment  of 
2  milliards,  SYz  milliards  altogether.  If  exports 
rise  to  10  milliards,  the  corresponding  figure  is 
4^/^  milliards.  The  table  of  payments  in  the  near 
future  is  then  as  shown  on  the  next  page,  all  the 
figures  being  in  terms  of  milliards  of  gold  marks. 
In  the  case  of  payments  after  May  1,  1922,  I  give 
alternative  estimates  on  the  basis  of  exports  on 
the  scale  of  6  and  10  milliards  respectively. 

Not  the  whole  of  these  sums  need  be  paid  in 

coal  and  payments  in  kind  to  the  Allies),  as  against  imports 
valued  at  53  milliard  paper  marks.  If  the  monthly  export  figures 
are  converted  into  gold  marks  at  the  average  exchange  of  the 
month,  the  exports  for  the  six  months  work  out  at  about  1865 
million  gold  marks,  or  at  the  rate  of  rather  less  than  4  milliard 
gold  marks  per  annum. 

'  In  The  Economic  Consequences  of  the  Peace,  p.  203,  I  ex- 
pressly premised  that  my  estimates  were  based  on  a  value  of 
money  not  widely  different  from  that  existing  at  the  date  at  which 
1  wrote.  Since  then  prices  have  risen  and  fallen  back  again.  The 
same  proviso  is  necessary  in  the  case  of  the  present  estimates.  It 
would  have  been  more  practical  if,  in  fixing  Germany's  liability 
in  terms  of  money  for  a  long  period  of  years,  some  provision  had 
been  made  for  adjusting  the  real  burden  in  accordance  with 
fluctuations  in  the  value  of  money  during  the  period  of  payment. 


BURDEN  OF  THE  LONDON   SETTLEMENT 


75 


cash,  and  the  value  of  deliveries  in  kind  is  to  be 
credited  to  Germany  against  them.  This  item 
has  been  estimated  as  high  as  1.2  to  1.4  milliard 
gold  marks  per  annum.  The  result  will  chiefly 
depend  (1)  on  the  amount  and  price  of  the  coal 
deliveries,  and  (2)  on  the  degree  of  success  which 
attends  the  negotiations  between  France  and  Ger- 
many for  the  supply  by  the  latter  of  materials  re- 
quired for  the  repair  of  the  devastated  area.  The 
value  of  the  coal  deliveries  depends  on  factors  al- 
ready discussed  on  p.  49,  above,  the  price  of  the 
coal  being  chiefly  governed  by  the  internal  Ger- 
man price.  At  a  price  of  20  gold  marks  per  ton 
and  deliveries  of  2,000,000  tons  a  month  (neither 


1921-22  (Ex- 
ports 4  Mil- 
liards). 

1022-2r{anrl 
subseiUK'Ully 

(Exports 
G  Milliards). 

1922-23  anrl 

sul)sc(]Ufutly 

(Exports 
10  Milliards). 

May  25           -| 

1.00 

.20 
.50 
.26 
.50 

2.52 

.39 
.50 
.39 
.50 
.39 
.50 
.39 
.50 

3.5G 

65 

July  15 [ 

Aug.  15 [ 

Oct.  15   J 

l^ov.  15  

.50 
.65 
.50- 
.65 

Jan.  15   

.50 

Feb.  15   

.65 

April  15   

.50 

Total    

4.60 

Equivalent  in   dul-  -^ 
lars    at    $1=41 
pold  marks            J 

.?G30,000,000 

$890,000,000 

$1,150,000,000 

76  A  REVISION   OF  THE  TREATY 

of  which  figures  are  likely  to  be  exceeded,  or  even 
reached,  in  the  near  future),  coal  will  yield  cred- 
its of  .48  milliard  gold  marks.  In  the  Loucheur- 
Rathenau  Agreement^  the  value  of  deliveries  in 
kind  to  France,  including  coal,  over  the  next  five 
years  has  been  estimated  at  a  possible  total  of  1.4 
milliard  gold  marks  per  annum.  If  France  re- 
ceives .4  milliard  gold  marks  in  coal,  not  more  than 
35  per  cent  of  the  balance  will  be  credited  in  the 
Reparation  account.  If  this  were  realized,  the 
aggregate  deliveries  in  kind  might  approach  1  mil- 
liard. But,  for  various  reasons,  political  and  eco- 
nomic, this  figure  is  unlikely  to  be  reached,  and 
if  as  much  as  .75  milliards  per  annum  is  real- 
ized from  coal  and  reconstruction  deliveries,  this 
ought  to  be  considered  a  highly  satisfactory  re- 
sult. 

Now  the  payments  were  so  arranged  as  to  pre- 
sent no  insuperable  difficulties  during  1921.  The 
instalment  of  August  31,  1921  (which  did  not  ex- 
ceed the  sum  which  the  Germans  had  themselves 
offered  for  immediate  payment  in  their  counter- 
proposal of  April  1921)  was  duly  paid,  partly  out 
of  foreign  balances  accumulated  before  May  1 
last,  partly  by  selling  out  paper  marks  over  the 
foreign  exchanges,  and  partly  by  temporary  ad- 
vances from  an  international  group  of  bankers. 
The  instalment  of  November  15, 1921,  was  covered 

*  See  Excursus  III. 


BURDEN  OF  THE  LONDON  SETTLEMENT        77 

by  the  value  of  deliveries  of  coal  and  other  ma- 
teriiil  subsequent  to  May  1,  1921.  Even  the  in- 
stalments of  January  15  and  February  15,  1922, 
might  be  covered  out  of  further  deliveries,  tempo- 
rary advances,  and  the  foreign  assets  of  German 
industrialists,  if  the  German  Government  could 
get  hold  of  them.  But  the  payment  of  April  15, 
1922,  must  present  more  difficulty ;  whilst  further 
instalments  follow  quickly  on  May  15,  July  15, 
and  August  15.  Some  time  between  February 
and  August  1922  Germany  will  succumb  to  an  in- 
evitable default.  This  is  the  maximum  extent  of 
our  breathing  space.^ 

That  is  to  say,  in  so  far  as  she  depends  for  pay- 
ment (as  in  the  long  run  she  must  do)  on  current 
income.  If  capital,  non-recurrent  resources  be- 
come available,  the  above  conclusion  will  require 
modification  accordingly.  Germany  still  has  an 
important  capital  asset  untouched — the  property 
of  her  nationals  now  sequestered  in  the  hands  of 
the  Enemy-Property  Custodian  in  the  United 
States,  of  which  the  value  is  rather  more  than  1 
milliard  gold  marks.  If  this  were  to  become  avail- 
able for  Reparation,  directly  or  indirectly,  default 


•  I  first  piiblisliod  this  prediction  in  August  1921.  Aa  this 
book  goes  to  press,  the  German  Government  have  notified  the 
Reparation  Commission  (December  15,  1921)  tiiat,  having  failed 
in  their  attempt  to  secure  a  foreign  loan,  they  cannot  find,  npart 
from  deliveries  in  kind,  more  than  150  or  200  million  gold  marks 
towards  the  instalments  of  January  and  February,  1922. 


78  A  EEVISION   OF   THE   TEEATY 

could  be  delayed  correspondingly.^  Similarly  the 
grant  to  Germany  of  foreign  credits  on  a  substan- 
tial scale,  even  tbree-montbs'  credits  from  bank- 
ers on  the  security  of  the  Reichsbank's  gold,  would 
postpone  the  date  a  little,  however  useless  in  the 
long  run. 

In  reaching  this  conclusion,  one  can  approach 
the  problem  from  three  points  of  view:  (1)  the 
problem  of  paying  outside  Germany,  that  is  to  say, 
tliG  problem  of  exports  and  the  balance  of  trade; 

(2)  the  problem  of  providing  for  payment  by 
taxation,  that  is  to  say,  the  problem  of  the  Budget; 

(3)  the  proportion  of  the  sums  demanded  to  the 
German  national  income.  I  will  take  them  in 
turn,  confining  myself  to  what  Germany  can  be 
expected  to  perform  in  the  near  future,  to  the  ex- 


*  The  United  States  has  the  right  to  retain  and  liquidate  all 
property,  rights,  and  interests  belonging  to  German  nationals  and 
lying  within  the  territories,  colonies,  and  possessions  of  the  United 
States  on  January  10,  1920.  The  proceeds  of  such  liquidation  are 
at  the  disposal  of  the  United  States  "in  accordance  with  its  laws 
and  regulations,"  that  is  to  say,  at  the  disposal  of  Congress 
within  the  limitations  of  the  Constitution,  and  may  be  applied  by 
them  in  any  of  the  three  following  ways:  (1)  the  assets  in  ques- 
tion may  be  returned  to  their  original  German  owners;  (2)  they 
may  be  applied  to  the  discharge  of  claims  by  United  States  na- 
tionals with  regard  to  their  property,  rights,  and  interests  in 
German  territory,  or  debts  owing  to  them  by  German  nationals, 
or  to  the  payment  of  claims  growing  out  of  acts  of  the  German 
Government  after  the  United  States  entered  the  war,  and  also  to 
the  discharge  of  similar  American  claims  in  respect  of  those  of 
Germany's  Allies  against  whom  the  United  States  was  at  war; 
(3)  they  may  be  turned  over  to  the  Reparation  Commission  as  a 
credit  to  Germany  under  this  head. 


BURDEN   OF   THE  LONDON   SETTLEMENT 


79 


elusion  of  what  she  might  do  in  hypothetical  cir- 
cumstances many  years  hence. 

(1)  In  order  that  Germany  may  be  able  to  make 
pajTuents  abroad,  it  is  necessary,  not  only  that 
she  should  have  exports,  but  that  she  should  have 
a  surplus  of  exports  over  imports.  In  1920,  the 
last  complete  year  for  which  figures  are  available, 
so  far  from  a  surplus  there  was  a  deficit,  the  ex- 
ports being  valued  at  about  5  milliard  gold  marks 
and  the  imports  at  5.4  milliards.  The  figures  for 
1921  so  far  available  indicate  not  an  improvement 
but  a  deterioration.  The  myth  that  Germany  is 
carrying  on  a  vast  and  increasing  export  trade  is 
so  widespread,  that  the  actual  figures  for  the  six 
months  from  May  to  October  1921,  converted  into 
gold  marks,  may  be  given  with  advantage : 


Million  Paper 
Marks. 

Million  Gold  Marks,  i 

Imports. 

Exports. 

Imports. 

Exports. 

Excess 

of 
Imports. 

1921,  May    

5,487 
0,409 
7,580 
9,418 
10,668 
13,900 

4,512 
5,433 
0,208 
6,684 
7,519 
9,700 

374.4 
388.8 
413.7 
477.2 
436.6 
352.6 

307.9 
329.7 
338.7 
334.8 
307.7 
246.0 

66  5 

"       June    

59  1 

"       July 

75  0 

August    

"       September     

"       Oetober  =     

142.4 
128.9 
100.6 

Total  for  six  months.  . 

53,462 

40,056 

2443.3 

1864.8 

578.5 

'  The  rates  for  cuii version  of  paper  marks  into  gold  marks  have 
been  taken  as  follows:  Number  of  paper  marks  per  100  gold 
marks  in  May,  1465.5;  June,  1647.9;  July,  1832;  August,  1996.4; 
September,  2443.2;  October,  3942.6  ^Provisional  figures. 


80  A   REVISION   OF   THE   TREATY 

In  respect  of  these  six  months  Germany  must 
make  a  fixed  payment  of  1000  million  gold  marks 
plus  26  per  cent  of  the  exports  as  above,  namely 
484.8  million  gold  marks,  that  is  1484.8  million 
gold  marks  altogether,  which  is  equal  to  about  80 
per  cent  of  her  exports;  whereas  apart  from  any 
Reparation  payments,  she  had  a  deficit  on  her  for- 
eign trade  at  the  rate  of  more  than  1  milliard 
gold  marks  per  annum.  The  bulk  of  Germany's 
imports  are  necessary  either  to  her  industries  or 
to  the  food  supply  of  the  country.  It  is  there- 
fore certain  that  with  exports  of  (say)  6  milliards 
she  could  not  cut  her  imports  so  low  as  to  have  the 
surplus  of  3Mi  milliards,  which  would  be  necessary 
to  meet  her  Reparation  liabilities.  If,  however, 
her  exports  were  to  rise  to  10  milliards,  her  Repa- 
ration liabilities  would  become  4.6  milliards.  Ger- 
many, to  meet  her  liabilities,  must  therefore  raise 
the  gold-value  of  her  exports  to  double  what  they 
were  in  1920  and  1921  tvithout  increasing  her  im- 
ports at  all. 

I  do  not  say  that  this  is  impossible,  given  time 
and  an  overwhelming  motive,  and  with  active  as- 
sistance by  the  Allies  to  Germany's  export  in- 
dustries; but  does  any  one  think  it  practicable 
or  likely  in  the  actual  circumstances  of  the  case? 
And  if  Germany  succeeded,  would  not  this  vast 
expansion  of  exports,  unbalanced  by  imports,  be 
considered  by  our  manufacturers  to  be  her  crown- 


BURDEN   OF  THE  LONDON   SETTLEMENT         81 

ing  crimed  That  this  should  be  the  case  even 
under  the  London  Settlement  of  1921  is  a  measure 
of  the  ludii?rous  folly  of  the  figures  given  out  in 
the  British  General  Election  of  1918,  which  were 
six  times  as  high  again. 

(2)  Next  there  is  the  problem  of  the  Budget. 
For  Reparation  payments  are  a  liability  of  the 
German  Government  and  must  be  covered  by  tax- 
ation. At  this  point  it  is  necessary  to  introduce 
an  assumption  as  to  the  relation  between  the  gold 
mark  and  the  paper  mark.  For  whilst  the  liability 
is  fixed  in  terms  of  gold  marks,  the  revenue  (or  the 
bulk  of  it)  is  collected  in  terms  of  paper  marks. 
The  relation  is  a  very  fluctuating  one,  best  meas- 
ured by  the  exchange  value  of  the  paper  mark  in 
terms  of  American  gold  dollars.  This  fluctuation 
is  of  more  importance  over  short  periods  than  in 
the  long  run.  For  in  the  long  run  all  values  in 
Germany,  including  the  yield  of  taxation,  will  tend 
to  adjust  themselves  to  an  appreciation  or  de- 
preciation in  the  value  of  the  paper  mark  outside 
Germany.  But  the  process  may  be  a  very  slow 
one,  and,  over  the  period  covered  by  a  year's 
budget,  unanticipated  fluctuations  in  the  ratio  of 
the  gold  to  the  paper  mark  may  upset  entirely  the 
financial  arrangements  of  the  German  Treasury. 

This  disturbance  has  of  course  occurred  on  an 
unprecedented  scale  during  the  latter  half  of  1921. 
Taxation  in  terms  of  paper  marks,  which  was 


82  A  REVISION   OF   THE  TREATY 

heavy  when  the  dollar  was  worth  50  x)aper  marks, 
becomes  very  inadequate  when  the  dollar  is  worth 
200  paper  marks;  but  it  is  beyond  the  power  of 
any  Finance  Minister  to  adjust  taxation  to  such  a 
situation  quickly.  In  the  first  place,  when  the  fall 
in  the  external  value  of  the  mark  is  proceeding 
rapidly,  the  corresponding  fall  in  the  internal 
value  lags  far  behind.  Until  this  adjustment  has 
taken  place,  which  may  occupy  a  considerable  time 
before  it  is  complete,  the  taxable  capacity  of  the 
people,  measured  in  gold,  is  less  than  it  was  before. 
But  even  then  a  further  interval  must  elapse  be- 
fore the  gold-value  of  the  yield  of  taxation  col- 
lectible in  paper  marks  can  catch  up.  The  ex- 
perience of  the  British  Inland  Revenue  Depart- 
ment well  shows  that  the  yield  of  direct  taxation 
must  largely  depend  on  the  taxable  assessments 
of  the  previous  period. 

For  these  reasons  the  collapse  of  the  mark  ex- 
change must,  if  it  persists,  destroy  beyond  repair 
the  Budget  of  1921-22,  and  probably  that  of  the 
first  half  of  1922-23  also.  But  I  should  be  over- 
stating my  argument  if  I  were  to  base  my  con- 
clusions on  the  figures  current  at  the  end  of  1921. 
In  the  shifting  sands  in  which  the  mark  is  foun- 
dering it  is  difficult  to  find  for  one's  argument  any 
secure  foothold. 

During  the  summer  of  1921  the  gold  mark  was 
worth,  in  round  figures,  20  paper  marks.    The  in- 


BUEDEN  OF  THE  LONDON  SETTLEMENT        83 

ternal  purchasing  power  of  the  paper  mark  for 
the  purposes  of  -working-class  consumption  was 
still  nearly  double  its  corresponding  value  abroad, 
so  that  one  could  scarcely  say  that  equilibrium 
had  been  established.  Nevertheless,  the  position 
was  very  well  adjusted  compared  with  what  it  has 
since  become.  As  I  write  (December  1921)  the 
gold  mark  has  been  fluctuating  between  45  and 
60  paper  marks,  while  the  purchasing  power  of 
the  jDaper  mark  inside  Germany  is  for  general 
purposes  perhaps  three  times  what  it  is  outside 
Germany. 

Since  my  figures  of  Government  revenue  and 
expenditure  are  based  on  statements  made  in  the 
summer  of  1921,  perhaps  my  best  course  is  to 
take  a  figure  of  20  paper  marks  to  the  gold  mark. 
The  effect  of  this  will  be  to  understate  my  argu- 
ment rather  than  the  contrary.  The  reader  must 
remember  that,  if  the  mark  remains  at  its  present 
exchange  value  long  enough  for  internal  values  to 
adjust  themselves  to  that  rate,  the  items  in  the 
following  account,  the  income  and  the  outgoings 
and  the  deficit,  will  all  tend  to  be  multiplied  three- 
fold. 

At  this  ratio  (of  20  paper  marks  =  1  gold 
mark),  a  Reparation  liability  of  3^2  milliard  gold 
marks  (assuming  exports  on  the  scale  of  6  mil- 
liards) is  equivalent  to  70  milliard  paper  marks, 
and  a  liability  of  4:^2  milliards  (assuming  exports 


84  A  EEVISION"  OF  THE  TREATY 

of  10  milliards)  is  equivalent  to  90  milliard  paper 
marks.  The  German  Budget  for  the  financial  year 
April  1,  1921,  to  March  31,  1922,  provided  for  an 
expenditure  of  93.5  milliards,  exclusive  of  Repa- 
ration payments,  and  for  a  revenue  of  59  mil- 
liards/ Thus  the  present  Reparation  demand 
would  by  itself  absorb  more  than  the  whole  of  the 
existing  revenue.  Doubtless  expenditure  can  be 
cut  down,  and  revenue  somewhat  increased.  But 
the  Budget  will  not  cover  even  the  lower  scale  of 
the  Reparation  payments  unless  expenditure  is 
halved  and  revenue  doubled.^ 


^  The  ordinary  revenue  and  expenditure  were  estimated  to  bal- 
ance at  48.48  milliard  paper  marks.  The  extraordinary  expendi- 
ture was  estimated  at  59.68  milliards,  making  a  total  expendi- 
ture of  108.16  milliards.  Included  in  this,  however,  were  14.6 
milliards  for  various  Reparation  items.  These  are  in  respect  of 
various  pre-May  1,  1921,  items  and  do  not  allow  for  payments 
under  the  London  Settlement;  but  to  avoid  confusion  I  have 
deducted  these  from  the  estimate  of  expenditure  as  stated  above. 
The  extraordinary  revenue  was  estimated  at  10.5  milliards,  mak- 
ing a  total  revenue  of  58.98  milliards. 

^  I  have  allowed  nothing  so  far  for  the  costs  of  the  Armies  of 
Occupation,  which,  under  the  letter  of  the  Treaty,  Germany  is 
imder  obligation  to  pay  in  addition  to  the  sums  due  for  Repara- 
tion proper.  As  these  charges  rank  in  priority  ahead  of  Repara- 
tion, and  as  the  London  Agreement  does  not  deal  with  them,  I 
think  Germany  is  liable  to  be  called  on  to  pay  these  as  they 
accrue  in  addition  to  the  annuities  fixed  in  the  London  Settle- 
ment. But  I  am  doubtful  whether  the  Allies  intend  in  fact  to 
demand  this.  Hitherto  the  expense  of  the  Armies  has  been  so 
great  as  to  absorb  virtually  the  whole  of  the  receipts  (see  Ex- 
cursus V.  below),  having  amoimted  by  the  middle  of  1921  to 
about  i?l, 000,000,000.  In  any  case,  it  is  now  time  that  the  agree- 
ment, signed  at  Paris  in  1919  by  Clemenceau,  Lloyd  George,  and 
Wilson,  should  be  brought  into  force,  to  the  effect  that  the  sum 
payable  annually  by  Germany  to  cover  the  cost  of  occupation 


BURDEN   OF  THE  LONDON   SETTLEMENT        85 

If  the  Gorman  Budget  for  3922-23  manages  to 
balance,  apart  from  any  provision  for  Reparation, 
this  will  represent  a  great  effort  and  a  consider- 
able achievement.  Apart,  however,  from  the  tech- 
nical financial  difliculties,  there  is  a  political  and 
social  aspect  of  the  question  which  deserves  at- 
tention here.  The  Allies  deal  with  the  established 
German  Government,  make  bargains  with  them, 
and  look  to  them  for  fulfilment.  The  Allies  do 
not  extract  payment  out  of  individual  Germans 
direct;  they  put  pressure  on  the  transitory  ab- 
straction called  Government,  and  leave  it  to  this 
to  determine  and  to  enforce  which  individuals  are 
to  pay,  and  how  much.  Since  at  the  present  time 
the  German  Budget  is  far  from  balancing  even  if 
there  were  no  Reparation  payments  at  all,  it  is 
fair  to  say  that  not  even  a  beginning  has  yet  been 
made  towards  settling  the  problem  of  how  the 
burden  is  to  be  distributed  between  different 
classes  and  different  interests. 

Yet  this  problem  is  fundamental.  Payment 
takes  on  a  different  aspect  when,  instead  of  being 
expressed  in  terms  of  milliards  and  as  a  liability 
of  the  transitory  abstraction,  it  is  translated  into 

shall  be  limited  to  240  million  gold  marks  as  soon  as  the  Allies 
"are  convinced  that  the  condiiiona  of  disarmament  by  Germany 
are  being  satisfactorily  fulfilled."  If  wo  assume  that  this  re- 
duced figure  is  brought  into  force,  as  it  ought  to  be,  the  total 
burden  on  Germany  for  Reparation  and  Occupation  comes,  on  the 
assumption  of  the  lower  figure  for  exports,  to  3.8  milliard  gold 
marks,  tliat  is,  to  76  milliard  paper  marks. 


86  A  EEVISION  OF   THE   TREATY 

a  demand  for  a  definite  sum  from  a  specific  in- 
dividual. This  stage  is  not  yet  reached,  and  until 
it  is  reached  the  full  intrinsic  difficulty  will  not 
be  felt.  For  at  this  stage  the  struggle  ceases  to 
be  primarily  one  between  the  Allies  and  the  Ger- 
man Government  and  becomes  a  struggle  between 
different  sections  and  classes  of  Germans.  The 
struggle  will  be  bitter  and  violent,  for  it  will  pre- 
sent itself  to  each  of  the  contesting  interests  as  an 
affair  of  life  and  death.  The  most  powerful  in- 
fluences and  motives  of  self-interest  and  self-pres- 
ervation will  be  engaged.  Conflicting  conceptions 
of  the  end  and  nature  of  Society  will  be  ranged 
in  conflict.  A  Government  which  makes  a  serious 
attempt  to  cover  its  liabilities  will  inevitably  fall 
from  power. 

(3)  What  relation  do  the  demands  bear  to  the 
third  test  of  capacity,  the  present  income  of  the 
German  people?  A  burden  of  70  milliard  paper 
marks  (if  we  may,  provisionallj^,  adopt  that  figure 
as  the  basis  of  our  calculations)  amounts,  since  the 
population  is  now  about  60  millions,  to  1170  marks 
per  head  for  every  man,  woman,  and  child. 

The  great  changes  in  money  values  have  made 
it  difficult,  in  all  countries,  to  obtain  estimates  of 
the  national  income  in  terms  of  money  under  the 
new  conditions.  The  Brussels  Conference  of 
1920,  on  the  basis  of  inquiries  made  in  1919  and 
at  the  beginning  of  1920,  estimated  the  German 


BURDEN   OF  THE  LONDON   SETTLEMENT        87 

income  per  head  at  3900  paper  marks.  This  fig- 
ure may  have  been  too  low  at  the  time,  and,  on 
account  of  the  further  depreciation  of  the  mark, 
is  certainly  too  low  now.  A  writer  in  the 
Deutsche  Allgemeine  Zeitung  (Feb.  14,  1921), 
working  on  the  statistics  of  statutory  deductions 
from  wages  and  on  income-tax,  arrived  at  a  figure 
of  2333  marks  per  head.  This  figure  also  is  likely 
to  be  too  low,  partly  because  the  statistics  must 
mainly  refer  to  earlier  dates  when  the  mark  was 
less  depreciated,  and  partly  because  all  such  sta- 
tistics necessarily  suffer  from  evasions.  At  the 
other  extreme  lies  the  estimate  of  Dr.  Albert 
Lansburgh,  who,  by  implication  {Die  Bank,  March 
1921),  estimated  the  income  per  head  at  6570 
marks.^  Another  recent  estimate  is  that  of  Dr. 
Arthur  Heichen  in  the  Pester  Lloyd  (June  5, 
1921),  who  put  the  figure  at  4450  marks.  In  a 
newspaper  article  published  in  various  quarters 
in  August  1921  I  ventured  to  adopt  the  figure  of 
5000  marks  as  the  nearest  estimate  I  could  make. 
In  fixing  on  this  figure  I  was  influenced  by  the 
above  estimates,  and  also  by  statistics  as  to  the 
general  level  of  salaries  and  wages.     Since  then 

'  "  Tliis  ostimato  is  based  on  an  average  wage  of  about  800 
paper  raarks  montlily  for  male,  and  about  400  paper  marks 
monthly  for  female,  employees."  Converting  these  figures  at  the 
rate  of  12  paper  marks  equal  to  1  gold  mark,  he  arrived  at  an 
aggregate  national  income  between  30  and  34  milliard  gold  marks. 
It  is  not  easy  to  see  how  these  wage  estimates,  even  assuming 
their  correctness,  can  lead  to  so  high  an  aggregate  figure. 


88  A  REVISION"  OF  THE  TREATY 

I  have  looked  into  the  matter  further  and  am  still 
of  the  opinion  that  this  figure  was  high  enough 
for  that  date. 

I  am  fortified  in  this  conclusion  by  the  result 
of  inquiries  which  I  addressed  to  Dr.  Moritz  Elsas 
of  Frankfort-on-Main,  on  whose  authority  I  quote 
the  following  figures.  The  best-known  estimate 
of  the  German  pre-war  income  is  Heltferich's  in 
his  Deutschlands  VolkswoJilstand  1888-1913.  In 
this  volume  he  put  the  national  income  in  1913 
at  40-41  milliard  gold  marks,  plus  2^2  milliards 
for  net  income  from  nationalized  concerns  (rail- 
ways, post  office,  etc.),  that  it  is  say,  an  aggregate 
of  43  milliards  or  642  marks  per  head.  Start- 
ing from  the  figure  of  41  milliards  (since  the  na- 
tional services  no  longer  produce  a  profit)  and 
deducting  15  per  cent  for  loss  of  territory,  we  have 
a  figure  of  34.85  milliards.  What  multiplier  ought 
we  to  apply  to  this  in  order  to  arrive  at  the  pres- 
ent income  in  terms  of  paper  marks'?  In  1920 
commercial  employees  obtained  on  the  average  in 
terms  of  marks  41/4  times  their  pre-war  income, 
whilst  at  that  time  workmen  had  secured  an  in- 
crease in  their  nominal  wages  of  50  per  cent  more 
than  this,  that  is  to  say,  their  wages  were  6  to  8 
times  the  pre-war  figure.  According  to  the  Sta- 
tistischen  Reichsamt  {Wirtschaft  und  Statistik, 
Heft  4,  Jahrgang  1)  commercial  employees  at  the 
beginning  of  1921  earned,  males  6  2-3  times  and 


BURDEN   OF   THE  LONDON   SETTLEMENT        89 

females  10  times  as  much  as  in  1913.^  On  the 
basis  of  the  same  proportion  as  in  1920  wo  arrive 
at  an  increase  of  10  times  in  the  nominal  wages 
of  workmen.  The  wages  index  number  of  the 
FranJifurtcr  Zvitung  for  August  1921  estimates 
the  wages  per  hour  at  11  times  the  pre-war  level, 
but,  as  the  number  of  working  hours  has  fallen 
from  10  to  8,  these  figures  yield  an  increase  of 
8.8  times  in  the  wage  actually  received.  Since 
the  wages  of  male  commercial  employees  have  in- 
creased less  than  this,  since  business  profits  in 
terms  of  paper  marks  only  reach  this  figure  of 
increase  in  exceptional  cases,  and  since  the  in- 
come of  the  rentier,  landlord,  and  professional 
classes  has  increased  in  a  far  lower  proportion, 
an  estimate  of  an  8-fold  increase  in  the  nominal 
income  of  the  country  as  a  whole  at  that  date 
(August  1921)  is  likely  to  be  an  over-estimate 
rather  than  an  under-estimate.  This  leads  to  an 
aggregate  national  income,  on  the  basis  of  the 
Helfferich  pre-war  figures,  of  278.80  milliard 
paper  marks,  and  to  an  income  of  4647  marks  per 
head  in  August  1921. 

No  allowance  is  made  here  for  the  loss  by  war 
of  men  in  the  prime  of  life,  for  the  loss  of  ex- 
ternal income  previously  earned  from  foreign  in- 
vestment and  the  mercantile  marine,  or  for  the  in- 

•  There  are  twice  as  many  male  commercial  employees  as  there 
arc  female. 


90  A  REVISION"  OF  THE  TEEATY 

crease  of  officials.  Against  these  omissions  there 
may  be  set  off  the  decrease  of  the  army  and  the 
increased  number  of  women  employees. 

The  extreme  instability  of  economic  conditions 
makes  it  almost  impossible  to  conduct  a  direct  sta- 
tistical inquiry  into  this  problem  at  the  present 
time.  In  such  circumstances  the  general  method 
of  Dr.  Elsas  seems  to  me  to  be  the  best  available. 
His  results  show  that  the  figure  taken  above  is 
of  the  right  general  dimensions  and  is  not  likely 
to  be  widely  erroneous.  It  enables  us,  too,  to  put 
an  upper  limit  of  reasonable  possibility  on  our 
figures.  No  one,  I  think,  would  maintain  that  in 
August  1921  nominal  incomes  in  Germany  aver- 
aged 10  times  their  pre-war  level;  and  10  times 
Helfferich's  pre-war  estimate  comes  to  6420 
marks.  No  statistics  of  national  incomes  are  very 
precise,  but  an  assertion  that  in  the  middle  of  1921 
the  German  income  per  head  per  annum  lay  be- 
tween 4500  marks  and  6500  marks,  and  that  it  was 
probably  much  nearer  the  lower  than  the  higher 
of  these  figures,  say  5000  marks,  is  about  as  near 
the  truth  as  we  shall  get. 

In  view  of  the  instability  of  the  mark,  it  is,  of 
course,  the  case  that  such  estimates  do  not  hold 
good  for  any  length  of  time  and  need  constant  re- 
vision. Nevertheless  this  fact  does  not  upset  the 
following  calculation  as  much  as  might  be  sup- 
posed, because  it  operates  to  a  certain  extent  on 


BUHDEN    OF   THE   LUXDOX   SETTLEMENT         91 

both  sides  of  the  account.  If  the  mark  depreci- 
ates further,  the  average  income  per  head  in 
paper  marks  will  tend  to  rise;  but  in  this  event 
the  equivalent  in  paper  marks  of  the  Reparation 
liability  will,  since  it  is  expressed  in  terms  of  gold 
marks,  rise  also.  A  real  alleviation  can  only  re- 
sult from  a  fall  in  the  value  of  gold  (i.e.,  a  rise 
in  world  prices). 

To  the  taxation  in  respect  of  the  Reparation 
charge  there  must  be  added  the  burden  of  Ger- 
many's own  government,  central  and  local.  By 
the  most  extreme  economies,  short  of  repudiation 
of  war  loans  and  war  pensions,  this  burden  could 
hardly  be  brought  below  1000  paper  marks  per 
head  (at  20  paper  marks  =  1  gold  mark),  i.e.,  60 
milliards  altogether,  a  figure  greatly  below  the 
present  expenditure.  In  the  aggregate,  there- 
fore, 2170  marks  out  of  the  average  income  of 
5000  marks,  or  43  per  cent,  would  go  in  taxation. 
If  exjoorts  rise  to  10  milliards  (gold)  and  the  aver- 
age income  to  6000  paper  marks,  the  correspond- 
ing figures  are  2500  marks  and  42  per  cent. 

There  are  circumstances  in  which  a  wealthy  na- 
tion, impelled  by  overwhelming  motives  of  self- 
interest,  might  support  this  burden.  But  the  an- 
nual income  of  5000  paper  marks  per  head  is 
equivalent  in  exchange  value  (at  an  exchange  of 
20  paper  marks  to  1  gold  mark)  to  $62.50,  and 
after  deduction  of  taxation  to  about  $35,  that  is 


92  A  KEVISION   OF   THE   TEEATY 

to  say  to  less  than  10  cents  a  day,  which  in  August 
1921  was  the  equivalent  in  purchasing  power  in 
Germany  of  something  between  20  cents  and  25 
cents  in  the  United  States/  If  Germany  was  given 
a  respite,  her  income  and  with  it  her  capacity 
would  increase;  but  under  her  present  burdens, 
which  render  saving  impossible,  a  degradation  of 
standards  is  more  likely.  "Would  the  whips  and 
scorpions  of  any  Government  recorded  in  history 
have  been  efficient  to  extract  nearly  half  their 
income  from  a  people  so  situated? 

For  these  reasons  I  conclude  that  whilst  the 
Settlement  of  London  granted  a  breathing  space 
to  the  end  of  1921,  it  can  be  no  more  permanent 
than  its  predecessors. 

EXCURSUS  III 

THE   WIESBADEN   AGREEMENT 

In  the  summer  of  1921  much  interest  was  excited 
by  reports  of  confidential  interviews  between  M. 
Loucheur  and  Herr  Rathenau,  the  Ministers  of 
Reconstruction  in  France  and  Germany  respec- 
tively. An  agreement  was  provisionally  reached 
in  August  1921  and  was  finally  signed  at  Wies- 
baden on  October  6,  1921^;  but  it  does  not  come 

•  For  a  full  examination  of  the  purchasing  power  of  the  paper 
mark  inside  Germany,  see  an  article  by  M.  Elsas  in  the  Economic 
Journal,  September  1021. 

*  A  summary  of  this  Agreement  and  other  papers  relating  to  it 
are  given  in  the  Appendix  No.  8. 


THE   WIESBADEN   AGREEMENT  93 

into  force  until  it  has  received  the  approval  of 
the  Reparation  Commission.  This  Commission, 
whilst  approving  the  general  principles  underly- 
ing it,  have  referred  it  to  the  principal  Allied  Gov- 
ernments on  the  ground  that  it  involves  departures 
from  the  Treaty  of  Versailles  beyond  their  own 
competence  to  authorize.  The  British  delegate, 
Sir  John  Bradbuiy,  has  advised  his  Government 
that  the  Agreement  should  be  approved  subject 
to  certain  modifications  which  he  sets  forth;  and 
his  Report  has  been  published/ 

The  Wiesbaden  Agreement  is  a  complicated  doc- 
ument. But  the  essence  of  it  is  easily  explained. 
It  falls  into  two  distinct  parts.  First,  it  sets  up 
a  procedure  by  which  private  French  firms  can 
acquire  from  private  German  firms  materials  re- 
quired for  reconstruction  in  France,  without 
France  having  to  make  payment  in  cash.  Sec- 
ondly, it  provides  that,  whilst  Germany  is  not  to 
receive  payment  at  once  for  any  part  of  these 
goods,  only  a  proportion  of  the  sum  due  is  credited 
to  her  immediately  in  the  books  of  the  Reparation 
Commission,  the  balance  being  advanced  by  her 
to  France  for  the  time  being  and  only  brought 
into  the  Reparation  account  at  a  later  date. 

The  first  set  of  provisions  has  met  with  un- 
qualified approval  from  every  one.  An  arrange- 
ment which  may  possibly  stimulate  payment  of 

'  See  Appendix  No.  8. 


94  A  REVISION   OF   THE  TREATY 

Reparation  in  the  form  of  actual  materials  for 
the  reconstruction  of  the  devastated  districts  sat- 
isfies convenience,  economics,  and  sentiment  in  a 
peculiarly  direct  way.  But  such  supplies  were 
already  arranged  for  under  the  Treaty,  and  the 
chief  value  of  the  new  procedure  lies  in  its  re- 
placing the  machinery  of  the  Reparation  Com- 
mission by  direct  negotiation  between  the  French 
and  German  authorities.^ 

The  second  set  of  provisions  is,  however,  of  a 
different  character,  since  it  interferes  with  the 
existing  agreements  between  the  Allies  themselves 
as  to  the  order  and  proportions  in  which  each  is 
to  share  in  the  available  receipts  from  Germany, 
and  seeks  to  secure  for  France  a  larger  share 
of  the  earlier  payments  than  she  would  receive 
otherwise.  A  priority  to  France  is,  in  my  opin- 
ion, desirable;  but  such  priority  should  be  ac- 
corded as  part  of  a  general  re-settlement  of  Repa- 
ration, in  which  Great  Britain  should  waive  her 
claim  entirely.  Further,  the  Agreement  involves 
an  act  of  doubtful  good  faith  on  the  part  of  Ger- 

*  Incidentally  the  Wiesbaden  Agreement  sets  up  a  fairer  pro- 
cedure for  fixing  the  prices  of  supplies  in  kind  than  that  con- 
templated in  the  Treaty.  According  to  the  Treaty  the  prices  are 
fixed  at  tlie  sole  discretion  of  the  Reparation  Commission.  In  the 
Wiesbad(>n  Agreement  this  duty  is  assigned  to  an  Arbitral  Com- 
mission consisting  of  a  German  representative,  a  French  repre- 
sentative, and  an  impartial  third  who  are  to  fix  the  prices,  broadly 
speaking,  on  the  basis  of  price  existing  in  France  in  each  quar- 
terly period  subject  to  this  price  being  not  more  than  5  per  cent 
below  the  German  price. 


THE   WIESBADEN"   AGREEMENT  95 

many.  She  has  been  protesting  with  great  vehe- 
mence (and,  I  believe,  with  perfect  truth)  that 
the  Decisions  of  London  exact  from  her  more  than 
she  can  perform.  But  in  such  circumstances  it 
is  an  act  of  impropriety  for  her  to  enter  volun- 
tarily into  an  agreement  which  must  have  the 
effect,  if  it  is  operative,  of  further  increasing  her 
liabilities  even  beyond  those  against  which  she 
protests  as  impossible.  Ilerr  Rathenau  may  jus- 
tify his  action  by  the  arguments  that  this  is  a 
first  step  towards  replacing  the  Decisions  of  Lon- 
don by  more  sensible  arrangements,  and  also  that, 
if  he  can  placate  Germany's  largest  and  most 
urgent  creditor  in  the  shape  of  France,  he  has 
not  much  to  fear  from  the  others.  M.  Loucheur, 
on  the  other  hand,  may  know  as  well  as  I  do, 
though  speaking  otherwise,  that  the  Decisions  of 
London  cannot  be  carried  out,  and  that  the  time 
for  a  more  realistic  policy  is  at  hand;  he  may 
even  regard  his  interviews  with  Herr  Rathenau 
as  a  foretaste  of  more  intimate  relationships  be- 
tween business  interests  on  the  two  sides  of  the 
Rhine.  But  these  considerations,  if  we  were  to 
pursue  them,  would  lead  us  to  a  different  plane  of 
argument. 

Sir  John  Bradbury  in  his  Report  ^  on  the  Agree- 
ment to  the  British  Government  has  proposed 
certain  modifications  which  would  have  the  effect 

'  See  Appendix  No.  8. 


96  A  REVISION   OF   THE   TEEATY 

of  preserving  the  advantages  of  the  first  set  of 
provisions,  but  of  nulUfying  the  latter  so  far  as 
they  could  operate  to  the  detriment  of  France's 
Allies. 

I  consider,  however,  that  exaggerated  impor- 
tance has  been  attached  to  this  topic,  since  the 
actual  deliveries  of  goods  made  under  the  Wies- 
baden or  similar  agreements  are  not  likely  to  be 
worth  such  large  sums  of  money  as  are  spoken 
of.  Deliveries  of  coal,  dyestuffs,  and  ships,  dealt 
with  in  the  Annexes  to  Part  VIII.  of  the  Treaty 
are  specifically  excluded  from  the  operation  of 
the  Wiesbaden  Agreement  which  is  expressly 
limited  to  deliveries  of  plant  and  material,  and 
these  France  undertakes  to  apply  solely  to  the 
reconstitution  of  the  devastated  regions.  The 
quantities  of  goods,  which  French  firms  and  in- 
dividuals will  be  ready  to  order  from  Germany 
at  the  full  market  price,  and  which  Germany  can 
supply,  for  this  limited  purpose  (so  great  a  part 
of  the  cost  of  which  is  necessarily  due  to  labor 
employed  on  the  spot  and  not  to  materials  capable 
of  being  imported  from  Germany),  are  not  likely 
to  amount,  during  the  next  five  years,  to  a  sum 
of  money  which  the  other  Allies  need  grudge 
France  as  a  priority  claim. 

My  other  reserve  relates  to  the  supposed  im- 
portance of  the  Wiesbaden  Agreement  as  a  prece- 
dent for   similar  arrangements  with  the   other 


THE   WIESBADEN   AGREEMENT  97 

Allies,  and  raises  the  general  issue  of  the  utility 
of  arrangements  for  securing  that  Germany 
should  pay  in  kind  rather  than  in  cash,  for 
other  purposes  than  those  of  the  devastated 
areas. 

It  is  commonly  believed  that,  if  our  demands 
on  Germany  are  met  by  her  delivering  to  us  not 
cash  but  particular  commodities  selected  by  our- 
selves, we  can  thus  avoid  the  competition  of  Ger- 
man products  against  our  own  in  the  markets  of 
the  world,  which  must  result  if  we  compel  her  to 
find  foreign  currency  by  selling  goods  abroad  at 
whatever  cut  in  price  may  be  necessary  to  market 
them.^ 

Most  suggestions  in  favor  of  our  being  paid  in 
kind  are  too  vague  to  be  criticized.  But  they  usu- 
ally suffer  from  the  confusion  of  supposing  that 
there  is  some  advantage  in  our  being  paid  di- 
rectly in  kind  even  in  the  case  of  articles  which 
Germany  might  be  expected  to  export  in  any  case. 
For  example,  the  Annexes  to  the  Treaty  which 
deal  with  deliveries  in  kind  chiefly  relate  to  coal, 
dyestuffs,  and  ships.  These  certainly  do  not  sat- 
isfy the  criterion  of  not  competing  with  our  own 
products;  and  I  see  very  little  advantage,  but 
on  the  other  hand  some  loss  and  inconvenience, 
in  the  Allies'  receiving  these  goods  direct,  instead 

'  I  return  to  the  theoretical  aspects  of  this  question  in  Chap- 
ter VI. 


98  A  REVISION  OF   THE   TREATY 

of  Germany's  selling  them  in  the  best  market  and 
paying  over  the  proceeds.  In  the  case  of  coal 
in  particular,  it  would  be  much  better  if  Ger- 
many sold  her  output  for  cash  in  the  best  export 
markets,  whether  to  France  and  Belgium  or  to 
the  neighboring  neutrals,  and  then  paid  the  cash 
over  to  France  and  Belgium,  than  that  coal  should 
be  delivered  to  the  Allies  for  which  the  latter  may 
have  no  immediate  use,  or  by  transport  routes 
which  are  uneconomical,  when  neutrals  need  the 
coal  and  what  the  Allies  really  require  is  the 
equivalent  cash.  In  some  cases  the  Allies  have 
re-sold  the  coal  which  Germany  has  delivered  to 
them, — a  procedure  which,  in  the  case  of  an  ar- 
ticle for  which  freight  charges  cover  so  large  a 
proportion  of  the  whole  value,  involves  a  prepos- 
terous waste. 

If  we  try  to  stipulate  the  precise  commodities 
in  which  Germany  is  to  pay  us,  we  shall  not  secure 
from  her  so  large  a  contribution,  as  if  we  fix  a 
reasonable  sum  which  is  within  her  capacity,  and 
then  leave  her  to  find  the  money  as  best  she  can. 
If,  moreover,  the  sum  fixed  is  reasonable,  the 
annual  payments  will  not  be  so  large,  in  propor- 
tion to  the  total  volume  of  international  trade, 
that  Great  Britain  need  be  nervous  lest  the  pay- 
ments upset  the  normal  equilibrium  of  her  eco- 
nomic life  in  any  greater  degree  than  is  bound 
to  result  in  any  case  from  the  gradual  economic 


THE   WIESBADEN    AGREEMENT  99 

recovery  of  so  formidable  a  trade  rival  as  pre- 
war Germany. 

Whilst  I  make  these  observations  in  the  in- 
terests of  scientific  accuracy,  I  admit  that  proj- 
ects, for  insisting  on  payment  in  kind  may  be 
very  useful  politically  as  a  means  of  escaping 
out  of  our  present  impasse.  In  practice  the  value 
of  such  deliveries  would  turn  out  to  be  immensely 
less  than  the  cash  we  are  now  demanding;  but 
it  may  be  easier  to  substitute  deliveries  of  ma- 
terials in  place  of  cash,  which  will  in  practice 
result  in  a  great  abatement  of  our  demands,  than 
to  abate  the  latter  in  so  many  words.  Moreover, 
protests,  against  leaving  Germany  free  to  pay 
us  in  cash  by  selling  goods  how  and  where  she 
can,  enlist  on  the  side  of  revision  all  the  latent 
Protectionist  sentiment  which  still  abounds.  If 
Germany  were  to  make  a  strenuous  effort  to  pay 
us  by  exploiting  the  only  method  open  to  her, 
namely,  by  selling  as  many  goods  as  possible  at 
low  prices  all  over  the  world,  it  would  not  be 
long  before  many  minds  would  represent  this 
effort  as  a  plot  to  ruin  us;  and  persons  of  this 
way  of  thinking  will  be  most  easily  won  over,  if 
we  describe  a  reduction  in  our  demands,  as  a 
prohibition  to  Germany  against  developing  a 
nefarious  competitive  trade.  Such  a  way  of  ex- 
pressing a  desirable  change  of  policy  combines, 
with  a  basis  of  truth,  sufficient  false  doctrine  to 


100  A  REVISION   OF   THE   TREATY 

enable  The  Times,  for  example,  to  recommend  it 
in  a  leading  article  without  feeling  conscious  of 
any  intellectual  inconsistency;  and  it  furnishes 
what  so  many  people  are  now  looking  for,  namely, 
a  pretext  for  behaving  sensibly,  without  having 
to  suffer  the  indignity  and  inconvenience  of  think- 
ing and  speaking  so  too.  Heaven  forbid  that  I 
should  discourage  them!  It  is  only  too  rarely 
that  a  good  cause  can  summon  to  its  assistance 
arguments  sufficiently  mixed  to  insure  success. 

EXCURSUS  IV 

THE   MAKK   EXCHANGE 

The  gold  value  of  a  country's  inconvertible  paper 
money  may  fall,  either  because  the  Government 
is  spending  more  than  it  is  raising  by  loans  and 
taxes  and  is  meeting  the  balance  by  issuing  paper 
money,  or  because  the  country  is  under  the  obli- 
gation of  paying  increased  sums  to  foreigners  for 
the  purchase  of  investments  or  in  discharge  of 
debts.  Temporarily  it  may  be  affected  by  spec- 
ulation, that  is  to  say  by  anticipation,  whether 
well  or  ill  founded,  that  one  or  other  of  the  above 
influences  will  operate  shortly;  but  the  influence 
of  speculation  is  generally  much  exaggerated,  be- 
cause of  the  immense  effect  which  it  may  exercise 
momentarily.  Both  influences  can  only  operate 
through  the  balance  of  debts,  due  for  immediate 


THE   IMARK   EXCHANGE  101 

payment,  between  the  country  in  question  and  the 
rest  of  the  world:  tlie  liability  to  make  payments 
to  foreigners  operating  on  this  directly;  and  the 
inflation  of  the  currency  operating  on  it  indirectly, 
either  because  the  additional  paper  money  stim- 
ulates imports  and  retards  exports,  by  increasing 
local  purchasing  power  at  the  existing  level  of 
values  or  because  the  expectation  that  it  will  so 
act  causes  anticipatory  speculation.  The  expan- 
sion of  the  currency  can  have  no  effect  whatever 
on  the  exchanges  until  it  reacts  on  imports  and 
exports,  or  encourages  speculation;  and  as  the 
latter  cancels  out,  sooner  or  later,  the  effect  of 
currency  expansion  on  the  exchanges  can  only  last 
by  reacting  on  imports  and  exports. 

These  principles  can  be  applied  without  difficulty 
to  the  exchange  value  of  the  mark  since  1920.  At 
first  the  various  influences  were  not  all  operating 
in  the  same  direction.  Currency  inflation  tended 
to  depreciate  the  mark;  so  did  foreign  investment 
by  Germans  (the  "flight  from  the  mark'');  but 
investment  by  foreigners  in  German  Bonds  and 
German  currency  (an  exact  line  between  w^hich 
and  short-period  speculation  it  is  not  easy  to 
draw)  operated  sharply  in  the  other  direction. 
After  the  mark  had  fallen  to  such  a  level  that 
more  than  25  marks  could  be  obtained  for  a  dollar, 
numerous  persons  all  over  the  world  formed  the 
opinion  that  there  would  be  a  reaction  some  day 


102  A  EEVISION   OF   THE   TREATY 

to  the  pre-war  value,  and  that  therefore  a  pur- 
chase of  marks  or  mark  Bonds  would  be  a  good 
investment.  This  investment  proceeded  on  so  vast 
a  scale  that  it  placed  foreign  currency  at  the 
disposal  of  Germany  up  to  an  aggregate  value 
which  has  been  estimated  at  from  $800,000,000  to 
$1,000,000,000.  These  resources  enabled  Germany, 
partially  at  least,  to  replenish  her  food  supplies 
and  to  restock  her  industries  with  raw  materials, 
requirements  involving  an  excess  of  imports  over 
exports  which  could  not  otherwise  have  been  paid 
for.  In  addition  it  even  enabled  individual  Ger- 
mans to  remove  a  part  of  their  wealth  from  Ger- 
many for  investment  in  other  countries. 

Meanwhile  currency  inflation  was  proceeding. 
In  the  course  of  the  year  1920  the  note  circula- 
tion of  the  Reichsbank  approximately  doubled, 
whilst  on  balance  the  exchange  value  of  the  mark 
had  deteriorated  only  slightly  as  compared  with 
the  beginning  of  that  year. 

Moreover,  up  to  the  end  of  1920  and  even  dur- 
ing the  first  quarter  of  1921  Germany  had  made 
no  cash  payments  for  Reparation  and  had  even 
received  cash  (under  the  Spa  Agreement)  for 
a  considerable  part  of  her  coal  deliveries. 

After  the  middle  of  1921,  however,  the  various 
influences,  which  up  to  that  time  had  partly  bal- 
anced one  another,  began  to  work  all  in  one  direc- 
tion, that  is  to  say,  adversely  to  the  value  of 


THE  MAEK  EXCHANGE  103 

the  mark.  Currency  inflation  continued,  and  dur- 
ing 1921  the  note  circulation  of  the  Keichsbank 
was  nearly  trebled,  bringing  it  up  to  nearly  six 
times  what  it  had  been  two  years  earlier.  Im- 
ports steadily  exceeded  exports  in  value.  Some 
foreign  investors  in  marks  began  to  take  fright 
and,  so  far  from  increasing  their  holdings,  sought 
to  diminish  them.  And  now  at  last  the  German 
Government  was  called  on  to  make  important  cash 
payments  on  Reparation  account.  Sales  of  marks 
from  Germany,  instead  of  being  absorbed  by  for- 
eign investors,  had  now  to  be  made  in  competition 
with  sales  from  these  same  investors.  Naturally 
the  mark  collapsed.  It  had  to  fall  to  a  value 
at  which  new  buyers  would  come  forward  or  at 
which  sellers  would  hold  off.^ 

There  is  no  mystery  here,  nothing  but  what  is 
easily  explained.  The  credence  attached  to  stories 
of  a  "German  plot"  to  depreciate  the  mark  wil- 
fully is  further  evidence  of  the  overwhelming  pop- 
ular ignorance  of  the  influences  governing  the  ex- 
changes, an  ignorance  already  displayed,  to  the 
great  pecuniary  advantage  of  Germany,  by  the 
international  craze  to  purchase  mark  notes. 

In  its  later  stages  the  collapse  has  been  mainly 
due  to  the  necessity  of  paying  money  abroad  in 

*  Any  one,  who  can  fullj'  persuade  himself  of  the  unalterable 
trutli  of  the  proposition  that  every  day  the  sales  of  exchange 
must  exactly  ecjual  the  purchases,  will  have  gone  a  long  way 
towards  understanding  the  secret  of  the  exclianges. 


104  A  REVISION  OF  THE  TREATY 

discharge  of  Reparation  and  in  repaying  foreign 
investors  in  marks,  with  the  result  that  the  fall 
in  the  external  value  of  the  mark  has  outstripped 
any  figure  which  could  be  justified  merely  as  a 
consequence  of  the  present  degree  of  currency 
inflation.  Germany  would  require  a  much  larger 
note  issue  than  at  present,  if  German  internal 
prices  were  to  become  adjusted  to  gold  prices  at 
an  exchange  of  more  than  400  marks  to  the  dol- 
lar/ If,  therefore,  the  other  influences  were  to 
be  removed,  if,  that  is  to  say,  the  Reparation  de- 
mands were  revised  and  foreign  investors  were 
to  take  heart  again,  a  sharp  recovery  might  oc- 
cur. On  the  other  hand,  a  serious  attempt  by 
Germany  to  meet  the  Reparation  demands  would 
cause  the  expenditure  of  her  Government  to  ex- 
ceed its  income  by  so  great  an  amount,  that  cur- 
rency inflation  and  the  internal  price  level  would 
catch  up  in  due  course  the  external  depreciation 
in  the  mark. 
In  either  event  Germany  is  faced  with  an  un- 

*  Since  there  are  about  as  many  German  Government  Treasury 
Bills,  payable  at  short  notice,  held  by  the  public  and  the  banks, 
other  than  the  Reichsbank,  as  there  are  Rcichsbaiik  notes,  the 
note  issue  can  be  easily  expanded  as  soon  as  the  internal  price 
level  needs  more  legal  tender  currency  to  support  it,  even  apart 
from  new  issues  by  the  Government  to  meet  the  excess  of  their 
expenditure  over  their  income.  Do  those,  who  would  enforce  on 
the  German  Government  a  cessation  of  "the  printing  press," 
intend  that  the  outstanding  Treasury  Bills  should  be  repudiated, 
if  at  their  maturity  the  holders  wish  to  be  paid  off  in  cash? 
There  is  no  such  easy  solution  of  the  overwhelming  problems  of 
German  Public  Finance. 


THE   iNIARK  EXCHANGE  105 

fortunate  prospect.  If  the  present  excliange  de- 
preciation persists  and  the  internal  price  level 
becomes  adjusted  to  it,  the  resulting  redistribu- 
tion of  wealth  between  different  classes  of  the 
community  will  amount  to  a  social  catastrophe. 
If,  on  the  other  hand,  there  is  a  recovery  in  the 
exchange,  the  cessation  of  the  existing  artificial 
stimulus  to  industry  and  of  the  Stock  Exchange 
boom  based  on  the  depreciating  mark  may  lead 
to  a  financial  catastrophe.^  Those  responsible  for 
the  financial  policy  of  Germany  have  a  problem 
of  incomparable  difficulty  in  front  of  them.  Un- 
til the  Reparation  liability  has  been  settled  rea- 
sonably, it  is  scarcely  worth  the  while  of  any 
one  to  trouble  his  head  about  a  problem  which 
is  insoluble.  T\'lien  stabilization  has  become  a 
practicable  policy,  the  wisest  course  will  probably 
be  to  stabilize  at  whatever  level  prices  and  trade 
seem  most  nearly  adjusted  to  at  that  date. 

*  Furthermore,  every  improvement  in  the  value  of  the  mark 
increat»es  the  real  burden  of  wliat  Germany  owes  to  forpigTi 
holders  of  marks  and  also  the  real  burden  of  the  Public  Debt 
on  the  Exchequer.  A  rate  of  exchange  exoeedinsr  400  marks  to 
the  dollar  has  at  least  this  a(lv;;ntage  that  it  has  reduced  these 
two  burdens  to  very  moderate  dimensions. 


CHAPTER  IV 

The  Reparation  Bill 

The  Treaty  of  Versailles  specified  the  classes  of 
damage  in  respect  of  which  Germany  was  to  pay 
Reparation.  It  made  no  attempt  to  assess  the 
amount  of  this  damage.  This  duty  was  assigned 
to  the  Reparation  Commission,  who  were  in- 
structed to  notify  their  assessment  to  the  German 
Government  on  or  before  May  1,  1921. 

An  attempt  was  made  during  the  Peace  Con- 
ference to  agree  to  a  figure  there  and  then  for 
insertion  in  the  Treaty.  The  American  delegates 
in  particular  favored  this  course.  But  an  agree- 
ment could  not  be  reached.  There  was  no  rea- 
sonable figure  which  was  not  seriously  inadequate 
to  popular  expectations  in  France  and  the  British 
Empire.^  The  highest  figure  to  which  the  Ameri- 
cans would  agree,  namely,  140  milliard  gold 
marks,  was,  as  we  shall  see  later,  not  much  above 
the  eventual  assessment  of  the  Reparation  Com- 
mission; the  lowest  figure  to  which  France  and 
Great  Britain  would  agree,  namely,  180  milliard 

*  A  fairly  adequate  account  of  this  controversy  during  the 
Peace  Conference  can  be  pieced  together  from  the  following  pas- 
sages: Baruch,  Making  of  Reparation  and  Economic  Sections  of 
the  Treaty,  pp.  45-55;  Lament,  What  really  happened  at  Paris, 
pp.  262-265;  Tardieu,  The  Truth  about  the  Treaty,  pp.  294-309. 

106 


THE  REPAEATION  BILL  107 

gold  marks,  was,  as  it  has  turned  out,  much  above 
the  amount  to  which  they  were  entitled  even  un- 
der their  own  categories  of  claim.^ 

Between  the  date  of  the  Treaty  and  the  an- 
nouncement of  its  decision  by  the  Reparation  Com- 
mission, there  was  much  controversy  as  to  what 
this  amount  should  be.  I  propose  to  review  some 
of  the  details  of  this  problem,  because,  if  men 
are  in  any  way  actuated  by  veracity  in  interna- 
tional affairs,  a  just  opinion  about  it  is  still  rele- 
vant to  the  Reparation  problem. 

The  main  contentions  of  The  Economic  Conse- 
quences of  the  Peace  were  these:  (1)  that  the 
claims  against  Germany  which  the  Allies  were 
contemplating  were  impossible  of  payment;  (2) 
that  the  economic  solidarity  of  Europe  was  so 
close  that  the  attempt  to  enforce  these  claims 
might  ruin  every  one;  (3)  that  the  money  cost 
of  the  damage  done  by  the  enemy  in  France  and 
Belgium  had  been  exaggerated;  (4)  that  the  in- 
clusion of  pensions  and  allowances  in  our  claims 
was  a  breach  of  faith;  and  (5)  that  our  legitimate 
claim  against  Germany  was  within  her  capacity 
to  pay. 

I  have  made  some  supplementary  observations 
about  (1)  and  (2)  in  Chapters  III.  and  VI.  I  deal 
with  (3)  here  and  in  Chapter  V.  with  (4).  These 
latter  are  still  important.    For,  whilst  time  is  so 

*  For  these  figures  see  Tardieu,  op.  cit.,  p.  305. 


108  A  KEWSION  OF  THE  TEEATY 

dealing  with  (1)  and  (2)  that  very  few  people 
now  dispute  them,  the  amount  of  our  legitimate 
claim  against  Germany  has  not  been  brought  into 
so  sharp  a  focus  by  the  pressure  of  events.  Yet 
if  my  contention  about  this  can  be  substantiated, 
the  world  will  find  it  easier  to  arrange  a  practical 
settlement.  The  claims  of  justice  in  this  connec- 
tion are  generally  thought  to  be  opposed  to  those 
of  possibility,  so  that  even  if  the  pressure  of 
events  drives  us  reluctantly  to  admit  that  the 
latter  must  prevail,  the  former  will  rest  unsatis- 
fied. If,  on  the  other  hand,  restricting  ourselves 
to  the  devastations  in  France  and  Belgium,  we  can 
demonstrate  that  it  is  within  the  capacity  of 
Germany  to  make  full  reparation,  a  harmony  of 
sentiment  and  action  can  be  established. 

With  this  end  in  view  it  is  necessary  that  I 
should  take  up  again,  in  the  light  of  the  fuller 
information  now  available,  the  statements  which 
I  made  in  The  Economic  Consequences  of  the 
Peace  (p.  120)  to  the  effect  that  ''the  amount 
of  the  material  damage  done  in  the  invaded  dis- 
tricts has  been  the  subject  of  enormous,  if  nat- 
ural, exaggeration."  These  statements  have  in- 
volved me  in  a  charge,  with  which  Frenchmen  as 
eminent  as  M.  Clemenceau  ^  and  M.  Poincare  have 
associated  themselves,  that  I  was  actuated  not 

'  It  is  of  these  passages  that  M.  Clemenceau  wrote  as  follows 
in  his  preface  to  M.  Tardieu'a  book:  "Fort  en  theme  d'^cono- 
miste,  M.  Keynes    (qui  oe  fut  pas  seul,  dans  la  Conference,  9, 


THE  REPARATION   BILL  109 

by  the  truth  but  by  a  supposed  hostility  to  France 
in  speaking  thus  of  the  allegations  of  M.  Klotz 
and  M.  Loucheur  and  some  other  Frenchmen.  But 
I  still  urge  on  France  that  her  cause  may  be 
served  by  accuracy  and  the  avoidance  of  over- 
statement; that  the  damage  she  has  sufTered  is 
more  likely  to  be  made  good  if  the  amount  is 
possible  than  if  it  is  impossible;  and  that,  the 
more  moderate  her  claims  are,  the  more  likely 
she  is  to  win  the  support  of  the  world  in  securing 
priority  for  them.  M.  Brenier,  in  particular,  has 
conducted  a  widespread  propaganda  with  the  ob- 
ject of  creating  prejudice  against  my  statistics. 
Yet  to  add  a  large  number  of  noughts  at  the  end 
of  an  estimate  is  not  really  an  indication  of  no- 
bility of  mind.  Nor,  in  the  long  run,  are  those 
persons  good  advocates  of  France's  cause  who 
bring  her  name  into  contempt  and  her  sincerity 
into  doubt  by  using  figures  wildly.  We  shall  never 
get  to  work  with  the  restoration  of  Europe  unless 
we  can  bring  not  only  experts,  but  the  public,  to 
consider  coolly  what  material  damage  France  has 

professor  cette  opinion )  combat,  sans  auoiin  mf>nagement,  Tabus 
di.'s  exigences  des  Allit^s'  (liscz:  'de  la  France')  et  de  pes  n^go- 
ciateurs.  .  .  .  Ces  reproches  et  tant  d'autres  d'une  violence 
brutale,  dont  je  n'auraia  rien  dit,  si  Tauteur,  i\  tous  risquea,  n'eQt 
cru  aervir  sa  cause  en  les  livrant  il  la  publicity,  font  asaez  claire- 
ment  voir  jiisqu'on  certains  esprita  s'<?taient  montea.'  (Tn  the 
English  edition,  M.  Tardievi  baa  caused  the  words  fnrt  en  theme 
d'^conomiste  to  he  translated  by  tlic  words  "with  some  knowledge 
of  economics  but  neither  imagination  nor  character" — which  seems 
rather  a  free  rendering.) 


110  A  REVISION   OF   THE   TREATY 

suffered  and  what  material  resources  of  repara- 
tion Germany  commands.  The  Times,  in  a  lead- 
ing article  which  accompanied  some  articles  by 
M.  Brenier  (December  4,  1920),  wrote  with  an 
air  of  noble  contempt — "Mr.  Keynes  treats  their 
losses  as  matter  for  statistics."  But  chaos  and 
poverty  will  continue  as  long  as  we  insist  on  treat- 
ing statistics  as  an  emotional  barometer  and  as 
a  convenient  vehicle  of  sentiment.  In  the  follow- 
ing examination  of  figures  let  us  agree  that  we 
are  employing  them  to  measure  facts  and  not  as 
a  literary  expression  of  love  or  hate. 

Leaving  on  one  side  for  the  present  the  items 
of  pensions  and  allowances  and  loans  to  Belgium, 
let  us  examine  the  data  relating  to  the  material 
damage  in  Northern  France.  The  claims  made 
by  the  French  Government  did  not  vary  very 
much  from  the  spring  of  1919,  when  the  Peace 
Conference  was  sitting,  down  to  the  spring  of 
1921,  when  the  Reparation  Commission  was  de- 
ciding its  assessment,  though  the  fluctuations  in 
the  value  of  the  franc  over  that  period  cause 
some  confusion.  Early  in  1919  M.  Dubois,  speak- 
ing on  behalf  of  the  Budget  Commission  of  the 
Chamber,  gave  the  figure  of  65  milliard  francs 
''as  a  minimum,"  and  on  February  17,  1919,  M. 
Loucheur,  speaking  before  the  Senate  as  Minister 
of  Industrial  Reconstruction,  estimated  the  cost 
at  75  milliards  at  the  prices  then  prevailing.    On 


THE  REPAKATION   BILL  111 

September  5, 1919,  M.  Klotz,  addressing  the  Cham- 
ber as  Minister  of  Finance,  put  the  total  French 
claims  for  damage  to  property  (presumably  in- 
clusive of  losses  at  sea,  etc.)  at  134  milliards.  In 
July  1920  M.  Dubois,  by  that  time  President  of 
the  Reparation  Commission,  in  a  Eeport  for  the 
Brussels  and  Spa  Conferences,  put  the  figure  at 
62  milliards  on  the  basis  of  pre-war  prices.^  In 
January  1921  M.  Doumer,  speaking  as  Finance 
Minister,  put  the  figure  at  110  milliards.  The 
actual  claim  which  the  French  Government  sub- 
mitted to  the  Reparation  Commission  in  April 
1921  was  for  127  milliard  paper  francs  at  current 
prices.-  By  that  time  the  exchange  value  of  the 
franc,  and  also  its  purchasing  power,  had  con- 
siderably depreciated,  and,  allowing  for  this,  there 
is  not  so  great  a  discrepancy  as  appears  at  first 
sight  between  the  above  estimates. 

For  the  assessment  of  the  Reparation  Commis- 
sion it  was  necessary  to  convert  this  claim  from 
paper  francs  into  gold  marks.  The  rate  to  be 
adopted  for  this  purpose  was  the  subject  of  acute 
controversy.     On  the  basis  of  the  actual  rate  of 

*  At  about  the  same  date,  the  German  Indemnity  Commission 
{Reichsentschadigungskommission)  estimated  the  cost  at  7228 
million  gold  marks,  also  on  tlie  basis  of  pre-war  prices;  that  is 
to  say,  at  about  one-sevenlli  of  AI.  Dubois'  estimate. 

*  The  details  of  this  claim,  so  far  as  they  have  been  published, 
are  given  in  Appendix  No.  3.  The  above  figure  comprises  the 
items  for  Industrial  Damages,  Damage  to  Houses,  Furniture  and 
Fittings,  Unbuilt-on  Land,  State  Property,  and  Public  Works. 


112  A  KEVISION  OF   THE  TEEATY 

exchange  prevailing  at  that  date  (April  1921)  the 
gold  mark  was  worth  about  3.25  paper  francs. 
The  French  representatives  claimed  that  this  de- 
preciation was  temporary  and  that  a  permanent 
settlement  ought  not  to  be  based  on  it.  They 
asked,  therefore,  for  a  rate  of  about  frs.  1.50  or 
frs.  1.75  to  the  gold  mark.^  The  question  was 
eventually  submitted  to  the  arbitration  of  Mr. 
Boyden,  the  American  member  of  the  Reparation 
Commission,  who,  like  most  arbitrators,  took  a 
middle  course  and  decided  that  2.20  paper  francs 
should  be  deemed  equivalent  to  1  gold  mark."  He 
would  probably  have  found  it  difficult  to  give  a 
reason  for  this  decision.  As  regards  that  part  of 
the  claim  which  was  in  respect  of  pensions,  a  fore- 
cast of  the  gold  value  of  the  franc,  however  im- 
practicable, was  relevant.  But  as  regards  that 
part  which  was  in  respect  of  material  damage,  no 
such  adjustment  was  necessary  ^ ;  for  the  French 
claim  had  been  drawn  up  on  the  basis  of  the  cur- 
rent costs  of  reconstruction,  the  gold  equivalent 
of  which  need  not  be  expected  to  rise  with  an 
increase  in  the  gold  value  of  the  franc,  an  im- 

*  See  M.  Loucheur's  speech  in  the  French  Chamber,  May  20, 
1921. 

^  For  this  rate  to  be  justified  the  exchange  value  of  the  frane 
in  New  York  must  rise  to  about  11  cents. 

"  M.  Louclicur's  statement  to  the  French  Chamber  implied  that 
the  rate  of  conversion  was  applicable  to  material  damage  as  well 
as  to  pensions,  and  1  have  assvmied  this  in  what  follows;  but 
precise  official  information  is  lacking. 


THE  REPARATION  BILL 


113 


provement  in  the  exchacge  being  balanced  sooner 
or  later  by  a  fall  in  franc  prices.  It  might  have 
been  proper  to  make  allowance  for  any  premium 
existing,  at  the  date  of  the  assessment,  on  the 
internal  purchasing  power  of  the  franc  over  that 
of  its  external  exchange-equivalent  in  gold.  But 
in  April  1921  the  franc  was  not  far  from  its  proper 
''purchasing  power  parity,"  and  I  calculate  that 
on  this  basis  it  would  have  been  approximately  ac- 
curate to  have  equated  the  gold  mark  with  3  paper 
francs.  The  rate  of  2.20  had  the  effect,  therefore, 
of  inflating  the  French  claim  against  Germany 
very  materially. 

At  this  rate  the  claim  of  127  milliard  paper 
francs  for  material  damage  was  equivalent  to 
57.7  milliard  gold  marks,  of  which  the  chief  items 
were  as  follows: 


Francs  (paper), 
millions. 

Marks  (Cold), 
mlUioDs. 

Industrial  damfiges    

38.882 
36,892 
25,110 
21,671 
1,058 
2.583 

17  673 

16  768 

rurniture  and  fittings    

Unbuilt-on   land    

11.-117 
0  850 

Stat©  property    

800 

Public  works  

1  174 

Total    

127,105 

57  772 

This  total  is  one  which  I  believe  to  be  a  vast, 
indeed  a  fantastic,  exaggeration  beyond  anything 
which  it  would  be  possible  to  justify  under  cross- 


114  A  KEVISION  OF   THE  TREATY 

examination.  At  the  date  when  I  wrote  The  Eco- 
nomic Consequences  of  the  Peace,  exact  statistics 
as  to  the  damage  done  were  not  available,  and 
it  was  only  possible  to  fix  a  maximum  limit  to  a 
reasonable  claim,  having  regard  to  the  pre-war 
wealth  of  the  invaded  districts.  Now,  however, 
much  more  detail  is  available  with  which  to  check 
the  claim. 

The  following  particulars  are  quoted  from  a 
statement  made  by  M.  Briand  in  the  French  Sen- 
ate on  April  6,  1921,  supplemented  by  an  official 
memorandum  published  a  few  days  later,  and  rep- 
resent the  position  at  about  that  date :  ^ 

*  The  figures  of  damage  done,  given  by  M.  Briand,  are  generally 
speaking  rather  lower  than  those  given  ten  months  earlier  (in 
June  1920)  in  a  report  by  M.  Tardieu  in  his  capacity  as  President 
of  the  Comit6  des  Regions  Devast^es.  But  the  diflference  is  not 
very  material.  For  purposes  of  comparison,  I  give  M.  Tardieu's 
figures  below  together  with  those  of  the  amount  of  reconstruction 
completed  at  that  earlier  date: 

Destroyed.  Repaired. 

Houses  totally  destroyed..  319,269                   2,000 

Houses  partially  destroyed  313,675               182,000 

Railway  lines    5,534  kilos.       4,042  kilos. 

Canals    1,596  "             784       " 

Roads    39,000  "           7,548       " 

Bridges,  embankments,  etc.  4,785  "           3,424       " 

Destroyed.  <^'^Xl£'"°     T.eveled.         Plowed. 
Arable  land 

(hectares)      3,200,000     2,900,000     1,700,000     1,150,000 

T^  ^         ,       Reconstructed         Under 
uesiroyea.       ^^^^  working,   reconstruction. 

Factories  and  works     11,500  3,540  3,812 

A  much  earlier  estimate  is  that  made  by  M.  Dubois  for  the 
Budget  Commission  of  the  French  Chamber  and  published  as 
Parliamentary  Paper  No.  5432  of  the  Session  of  1918. 


THE  REPARATION  BILL  115 

(1)  The  population  inhabiting  the  devastated 
districts  in  April  1921  was  4,100,000,  as  compared 
with  4,700,000  in  1914. 

(2)  Of  the  cultivable  land  95  per  cent  of  the 
surface  had  been  releveled  and  90  per  cent  had 
been  plowed  and  was  producing  crops. 

(3)  293,733  houses  were  totally  destroyed,  in 
replacement  of  which  132,000  provisional  dwell- 
ings of  different  kinds  had  been  erected. 

(4)  296,502  houses  were  partially  destroyed, 
of  which  281,300  had  been  repaired. 

(5)  Fifty  per  cent  of  the  factories  were  again 
working. 

(6)  Out  of  2404  kilometers  of  railway  destroyed, 
practically  the  whole  had  been  reconstructed. 

It  seems,  therefore,  that,  apart  from  refurnish- 
ing and  from  the  rebuilding  of  houses  and  fac- 
tories, the  greater  part  of  which  had  still  to  be 
accomplished,  the  bulk  of  the  devastation  was  al- 
ready made  good  out  of  the  daily  labor  of  France 
within  two  years  of  the  Peace  Conference,  before 
Germany  had  paid  anything. 

This  is  a  great  achievement, — one  more  demon- 
stration of  the  riches  accruing  to  France  from  the 
patient  industry  of  peasants,  which  makes  her  one 
of  the  rich  countries  of  the  world,  in  spite  of  the 
corrupt  Parisian  finance  which  for  a  generation 
past  has  wasted  the  savings  of  her  investors. 
When  we  look  at  Northern  France  we  see  what 


116 


A  REVISION  OF  THE  TREATY 


honest  Frenchmen  can  accomplish.^  But  when 
we  turn  to  the  money  claims  which  are  based  on 
this,  we  are  back  in  the  atmosphere  of  Parisian 
finance, — so  grasping,  faithless,  and  extravagantly 

*A  more  recent  estimate  (namely,  for  July  1,  1921)  has  been 
given,  presumably  from  official  sources,  by  M.  Fournier-Sarlovfeze, 
Deputy  for  the  Oise.     The  following  are  some  of  his  figures: 

Inhabited  Houses 

At  the  Armistice:    Totally  destroyed  289,147 

Badly  injured   164,317 

Partially  injured    258,419 

By  July  1921 :  Entirely  rebuilt 118,863 

Temporarily  repaired 182,694 

Public  Buildings 


Churches. 

Municipal 
Buildings. 

Schools. 

Post 
Offices. 

Hospitals. 

Destroyed    .... 

Damaged    

Kestored    

Te  mporarily 
patched  up  .  . 

1,407 
2,079 
1,214 

1,097 

1,415 

2,154 

322 

931 

2,243 

3,153 

720 

2,093 

171 

271 

53 

196 

30 

197 

28 

128 

Cultivated  Land 

Acres. 

At  the  Armistice:   Totally  destroyed    4,653,516 

By  July  1921 :  Leveled     4,067,408 

Plowed   3,528,960 

LrvE  Stock 


Cattle    

Horses,  donkeys,  and  mules 

Sheep  and  goats   

I*ig3  


1914.      Nov.  1918.   July  1921 


890,084 
412,730 
958,308 
357,003 


57,500 
32,600 
69.100 
25,000 


478,000 
235,400 
276,700 
169,000 


THE   REPARATION   BILL  117 

unveracious  as  to  defeat  iu  the  end  its  ovm  ob- 
jects. 

For  let  us  compare  some  of  these  items  of  dev- 
astation with  the  claims  lodged. 

(1)  293,733  houses  were  totally  destroyed  and 
296,502  were  partially  destroyed.  Since  nearly  all 
the  latter  have  been  repaired,  we  shall  not  be 
underestimating  the  damage  in  assuming,  for  the 
purposes  of  a  rough  comparison,  that,  on  the  aver- 
age, the  damaged  houses  were  half  destroyed, 
which  gives  us  altogether  the  equivalent  of  442,- 
000  houses  totally  destroyed.  Turning  back,  we 
find  that  the  French  Government's  claim  for  dam- 
age to  houses  was  16,768  million  gold  marks,  that 
is  to  say  $4,192,000,000.  Dividing  this  sum  by  the 
number  of  houses,  we  find  an  average  claim  of 
$9,480,  per  house !  ^  This  is  a  claim  for  what  were 
chiefly  peasants'  and  miners'  cottages  and  the  ten- 
ements of  small  country  towns.  M.  Tardieu  has 
quoted  M.  Loueheur  as  saying  that  the  houses  in 
the  Lens-Courrieres  district  were  worth  5000 
francs  ($1000)  a-piece  before  the  war,  but  would 
cost  15,000  francs  to  rebuild  after  the  war,  which 
sounds  not  at  all  unreasonable.  In  April  1921 
the  cost  of  building  construction  in  Paris  (which 
had  been  a  good  deal  higher  some  months  before) 
was  estimated  to  be,  in  terms  of  paper  francs, 

'  Evon  if  we  assumed  that  every  lioiipe  whieh  had  I)pen  injnrert 
at  all  was  totally  destroyed,  the  figure  would  work  out  at  about 
$7,000. 


118  A  REVISION   OF  THE  TREATY 

three  and  a  half  times  the  pre-war  figure/  But 
even  if  we  take  the  cost  in  francs  at  five  times  the 
pre-war  figure,  namely  25,000  paper  francs  per 
house,  the  claim  lodged  by  the  French  Government 
is  still  three  and  a  half  times  the  truth.  I  fancy 
that  the  discrepancy,  here  and  also  under  other 
heads,  may  be  partly  explained  by  the  inclusion 
in  the  official  French  claim  of  indirect  damages, 
namely,  for  loss  of  rent — perte  de  loyer.  It  does 
not  appear  what  attitude  the  Reparation  Commis- 
sion took  up  towards  indirect  pecuniary  and  busi- 
ness losses  arising  in  the  devastated  districts  out 
of  the  war.  But  I  do  not  think  that  such  claims 
are  admissible  under  the  Treaty.  Such  losses,  real 
though  they  were,  were  not  essentially  different 
from  analogous  losses  occurring  in  other  areas, 
and  indeed  throughout  the  territory  of  the  Allies. 

^  M.  Brenier,  who  has  spent  much  time  criticizing  me,  quotes 
with  approval  (The  Times,  January  24,  1921)  a  French  architect 
as  estimating  the  cost  of  reconstruction  at  an  average  of  $2,500 
per  Iiouse,  and  quotes  also,  without  dissent,  a  German  estimate 
that  the  pre-war  average  was  $1,200.  He  also  states,  in  the  same 
article,  that  the  number  of  houses  destroyed  was  304,191  and  the 
number  damaged  290,425,  or  594,616  in  all.  Having  pointed  out 
the  importance  of  not  overlooking  sentiment  in  these  questions, 
he  then  multiplies  $2,500,  not  by  the  number  of  houses  but  by 
the  number  of  the  population,  and  arrives  at  an  answer  of 
$3,750,000,000.  What  is  one  to  reply  to  sentimental  multiplica- 
tion? What  is  the  courteous  retort  to  controversy  on  these  lines? 
(His  other  figures  are  clearly  such  a  mass  of  misprints,  muddled 
arithmetic,  confusion  between  hectares  and  acres  and  the  like, 
that,  whilst  an  attack  could  easily  make  a  devastated  area  of 
them,  it  would  be  unfair  to  base  any  serious  criticism  on  thia 
well-intentioned  farrago.  As  a  writer  on  these  topics,  M.  Brenier 
is  about  of  the  caliber  of  M.  Raphael-Georges  Levy.) 


THE  REPARATION  BILL  119 

The  maximum  claim,  however,  on  this  head  would 
not  go  far  towards  justifying  the  above  figure, 
and  we  can  allow  a  considerable  margin  of  error 
for  such  additional  items  without  impairing  the 
conclusion  that  the  claim  is  exaggerated.  In  The 
Economic  Consequences  of  the  Peace  (p.  127)  I 
estimated  that  $1,250,000,000  might  be  a  fair  es- 
timate for  damage  to  house  property;  and  I  still 
think  that  this  was  about  right. 

(2)  This  claim  for  damage  to  houses  is  ex- 
clusive of  furniture  and  fittings,  which  are  the 
subject  of  a  separate  claim,  namely,  for  11,417 
million  gold  marks,  or  about  $2,850,000,000.  To 
check  this  figure  let  us  assume  that  the  whole  of 
the  furniture  and  fittings  were  destroyed,  not  only 
where  the  houses  were  destroyed,  but  also  in  every 
case  where  a  house  was  damaged.  This  is  an 
overstatement,  but  we  may  set  it  off  against  the 
fact  that  in  a  good  many  cases  the  furniture  may 
have  been  looted  and  not  recovered  by  restitution 
(a  large  amount  has,  in  fact,  been  recovered  in 
this  way),  although  the  structure  of  the  house  was 
not  damaged  at  all.  The  total  number  of  houses 
damaged  or  destroyed  was  590,000.  Dividing  this 
into  $2,850,000,000,  we  have  an  average  of  nearly 
$5,000  per  house — an  average  valuation  of  the 
furniture  and  fittings  in  each  peasant's  or  col- 
lier's house  of  nearly  $5,000!  I  hesitate  to  guess 
how  great  an  overstatement  shows  itself  here. 


120  A  REVISION  OF  THE  TREATY 

(3)  The  largest  claim  of  all,  however,  is  for 
''industrial  damages,"  namely,  17,673  million  gold 
marks,  or  about  $4,400,000,000.  In  1919  M.  Lou- 
cheur  estimated  the  cost  of  reconstruction  of  the 
coal  mines  at  2000  million  francs,  that  is  $400,- 
000,000  at  the  par  of  exchange/  As  the  pre-war 
value  of  all  the  coal  mines  in  Great  Britain  was 
estimated  at  only  $650,000,000,  and  as  the  pre- 
war output  of  the  British  mines  was  fifteen  times 
that  of  the  invaded  districts  of  France,  this  figure 
seems  high.-  But  even  if  we  accept  it,  there  is 
still  four  thousand  million  dollars  to  account  for. 
The  great  textile  industries  of  Lille  and  Roubaix 
were  robbed  of  their  raw  material,  but  their  plant 
was  not  seriously  injured,  as  is  shown  by  the  fact 
that  in  1920  the  woolen  industry  of  these  districts 
was  already  employing  93,8  per  cent  and  the  cot- 
ton industry  78.8  per  cent  of  their  pre-war  per- 
sonnel. At  Tourcoing  55  factories  out  of  57  were 
in  operation,  and  at  Roubaix  46  out  of  48.^ 

Altogether    11,500    industrial     establishments 

*  M.  Tardieu  states  that,  on  account  of  the  subsequent  rise  in 
prices,  M.  Loucheur's  estimate  has  proved,  in  terms  of  paper 
francs,  to  be  inadequate.  But  this  is  allowed  for  by  my  having 
converted  paper  francs  into  dollars  at  the  par  of  exchange. 

°  The  Lens  coal  mines,  which  were  the  object  of  most  complete 
destruction,  comprised  29  pits,  and  had,  in  1913,  16,000  workmen 
with  an  output  of  4  million  tons. 

'  I  take  these  figures  from  M.  Tardieu,  who  argues,  most  il- 
luminatingly,  in  alternate  chapters,  according  to  his  thesis  for  the 
time  being,  that  reconstruction  has  hardly  begun,  and  that  it  is 
nearly  finished. 


THE  REPARATION   BILL  121 

are  said  to  have  been  interfered  with,  but  this  in- 
cludes every  village  workshop,  and  about  three- 
quarters  of  them  employed  less  than  20  persons. 
Half  of  them  were  at  work  again  by  the  spring 
of  1921.  AVhat  is  the  average  chiim  made  on  their 
behalf?  Deducting  the  coal  mines  as  above  and 
dividing  the  total  claim  by  11,500,  we  reach  an 
average  figure  of  nearly  $35,000.  The  exaggera- 
tion seems  prima  facie  on  as  high  a  scale  as  in 
the  case  of  houses  and  furniture. 

(4)  The  remaining  item  of  importance  is  for 
unbuilt-on  land.  The  claim  under  this  head  is  for 
9850  million  gold  marks,  or  about  $2,460,000,000. 
M.  Tardieu  {op.  cit.,  p.  347)  quotes  j\Ir.  Lloyd 
George  as  follows,  in  the  course  of  a  discussion 
during  the  Peace  Conference  in  which  he  w^as 
pointing  out  the  excessive  character  of  the  French 
claims:  ''If  you  had  to  spend  the  money  which 
you  ask  for  the  reconstruction  of  the  devastated 
regions  of  the  North  of  France,  I  assert  that  you 
could  not  manage  to  spend  it.  Besides,  the  land 
is  still  there.  Although  it  has  been  badly  up- 
heaved in  parts,  it  has  not  disappeared.  Even  if 
you  put  the  Chemin  des  Dames  up  to  auction, 
you  would  find  buyers."  Mr.  Lloyd  George's 
view  has  been  justified  by  events.  In  April  1921 
the  French  Prime  Minister  was  able  to  tell  his 
Senate  that  95  per  cent  of  the  cultivable  land  had 
been  releveled  and  that  90  per  cent  had  been 


122  A  REVISION"  OF   THE   TREATY 

plowed  and  was  producing  crops.  Some  go  so 
far  as  to  maintain  that  the  fertility  of  the  soil  has 
been  actually  improved  by  the  disturbance  of  its 
surface  and  by  its  lying  fallow  for  several  years. 
But  apart  from  its  having  proved  easier  than  was 
anticipated  to  make  good  this  category  of  dam- 
age, the  total  cultivated  area  (excluding  wood- 
land) of  the  whole  of  the  eleven  Departments  af- 
fected was  about  6,650,000  acres,  of  which  270,000 
acres  were  in  the  ''zone  of  destruction,"  2,000,000 
acres  in  the  "zone  of  trenches  and  bombardment," 
and  4,200,000  acres  in  the  "zone  of  simple  occu- 
pation." The  claim,  therefore,  averaged  over  the 
ivliole  area,  works  out  at  about  $370  per  acre  and, 
averaged  over  the  first  two  categories  above,  at 
more  than  $1000  per  acre.  This  claim,  though  it 
is  described  as  being  in  respect  of  unbuilt-on  land, 
probably  includes  farm  buildings  (other  than 
houses),  implements,  live  stock,  and  the  growing 
crops  of  August  1914.  As  experience  has  proved 
that  the  permanent  qualities  of  the  land  have  only 
been  seriously  impaired  over  a  small  area,  these 
latter  items  should  probably  constitute  the  major 
part  of  the  claim.  We  have  also  to  allow  for  de- 
struction of  woodlands.  But  even  with  high  esti- 
mates for  each  of  these  items,  I  do  not  see  how 
we  could  reach  a  total  above  a  third  of  the  amount 
actually  claimed. 

These  arguments  are  not  exact,  but  they  are 


THE  REPARATION   BILL  1Z6 

sufficiently  so  to  demonstrate  that  the  claim  sent 
in  to  the  Reparation  Commission  is  untenable.  I 
believe  that  it  is  at  least  four  times  the  truth. 
But  it  is  possible  that  I  have  overlooked  some 
items  of  claim,  and  it  is  better  in  discussions  of 
this  kind  to  leave  a  wide  margin  for  possible  error. 
I  assert,  therefore,  that  on  the  average  the  claim 
is  not  less  than  two  or  three  times  the  truth. 

I  have  spent  much  time  over  the  French  claim, 
because  it  is  the  largest,  and  because  more  par- 
ticulars are  available  about  it  than  about  the 
claims  of  the  other  Allies.  On  the  face  of  it,  the 
Belgian  claim  is  open  to  the  same  criticism  as  the 
French.  But  in  this  claim  a  larger  part  is  played 
by  levies  on  the  civilian  population  and  personal 
injuries  to  civilians.  The  material  damage,  how- 
ever, was  on  a  veiy  much  smaller  scale  than  in 
France.  Belgian  industry  is  already  working  at 
its  pre-war  efficiency,  and  the  amount  of  recon- 
struction still  to  be  made  good  is  not  on  a  great 
scale.  The  Belgian  Minister  for  Home  Affairs 
stated  in  Parliament  in  February  1920  that  at 
the  date  of  the  Armistice  80,000  houses  and  1100 
public  buildings  had  been  destroyed.  This  sug- 
gests that  the  Belgian  claim  on  this  head  ought 
to  be  about  a  quarter  of  the  French  claim ;  but  in 
view  of  the  greater  wealth  of  the  invaded  dis- 
tricts of  France,  the  Belgian  loss  is  probably  de- 
cidedly less  than  a  quarter  of  the  French  loss. 


124  A  KEVISION  OF   THE   TEEATY 

The  claim,  actually  submitted  by  Belgium,  for 
property,  shipping,  civilians  and  prisoners  (that 
is  to  say,  the  aggregate  claim  apart  from  pensions 
and  allowances)  amounted  to  34,254  million  Bel- 
gian francs.  Inasmuch  as  the  Belgian  Ministry 
of  Finance,  in  an  official  survey  published  in  1913, 
estimate  the  entire  wealth  of  the  country  at 
29,525  million  Belgian  francs,  it  is  evident  that, 
even  allowing  for  the  diminished  value  of  the  Bel- 
gian franc,  which  is  our  measuring  rod,  this  claim 
.is  very  grossly  excessive.  I  should  guess  that  the 
degree  of  exaggeration  is  quite  as  great  as  in  the 
case  of  France. 

The  British  Empire  claim  is,  apart  from  pen- 
sions and  allowances,  almost  entirely  in  respect 
of  shipping  losses.  The  tonnage  lost  and  dam- 
aged is  definitely  known.  The  value  of  the  car- 
goes carried  is  a  matter  of  difficult  guesswork. 
On  the  basis  of  an  average  of  $150  for  the  hull  and 
$200  for  the  cargo  per  gross  ton  lost,  I  estimated 
the  claim  in  The  Economic  6 onsequences  of  the 
Peace  (p.  132)  at  $2,700,000,000.  The  actual 
claim  lodged  was  for  $3,835,000,000.  Much  de- 
pends on  the  date  at  which  the  cost  of  replacement 
is  calculated.  Most  of  the  tonnage  was  in  fact 
replaced  out  of  vessels  the  building  of  which  com- 
menced before  the  end  of  the  war  or  shortly  after- 
wards, and  thus  cost  a  much  higher  price  than 
prevailed  in,  e.g.,  1921.    But  even  so  the  claim 


THE  EEPAEATION  BILL  125 

lodged  is  very  high.  It  seems  to  be  based  on  an 
estimate  of  $500  per  gross  ton  lost  for  hull  and 
cargo  together,  any  excess  iu  this  being  set  off 
against  the  fact  that  no  separate  allowance  is 
made  for  vessels  damaged  or  molested,  but  not 
sunk.  This  figure  is  the  highest  for  which  any 
sort  of  plausible  argument  could  be  adduced, 
rather  than  a  judicial  estimate.  I  adhere  to  the 
estimate  which  I  gave  in  The  Economic  Conse- 
quences of  the  Peace. 

I  forbear  to  examine  the  claims  of  the  other 
Allies.  The  details,  so  far  as  they  have  been  pub- 
lished, are  given  in  Api^eudix  No.  3. 

The  observations  made  above  relate  to  the 
claims  for  material  damage  and  do  not  bear  on 
those  for  pensions  and  allowances,  which  are, 
nevertheless,  a  very  large  item.  These  latter  are 
to  be  calculated,  according  to  the  Treaty,  in  the 
case  of  pensions  "as  being  the  capitalized  cost  at 
the  date  of  coming  into  force  of  the  Treaty,  on 
the  basis  of  the  scales  in  force  in  France  at  such 
date,"  and  in  the  case  of  allowances  made  during 
hostilities  to  the  dependents  of  mobilized  persons 
"on  the  basis  of  the  average  scale  for  such  pay- 
ments in  force  in  France"  during  each  year. 
That  is  to  say,  the  French  Army  scale  is  to  be  ap- 
plied all  round;  and  the  result,  given  the  numbers 
affected,  should  be  a  calculable  figure,  in  which 
there  should  be  little  room  for  serious  error.    The 


126  A  REVISIOI^  OF  THE   TEEATY 

actual  claims  were  as  follows  in  milliard  gold 
marks :  ^ 

Milliard  marks 
(gold). 

France    33 

British  Empire  37 

Italy    17 

Belgium    1 

Japan    1 

Roumania     4 

93 
This  does  not  include  Serbia,  for  which  a  sepa- 
rate figure  is  not  available,  or  the  United  States. 
The  total  would  work  out,  therefore,  at  about  100 
milliard  gold  marks.^ 

Wliat  does  the  aggregate  of  the  claims  work 
out  at  under  all  heads,  and  what  relation  does  this 
total  bear  to  the  final  assessment  of  the  Repara- 
tion Commission?  As  the  claims  are  stated  in  a 
variety  of  national  currencies,  it  is  not  quite  a 
simple  matter  to  reach  a  total.  In  the  following 
table  French  francs  are  converted  into  gold  marks 
at  2.20  (the  rate  adopted  by  the  Commission  as 
explained  above),  sterling  approximately  at  par 

'  Francs  are  here  converted  at  2.20  to  the  gold  mark  and  the 
f  sterling  at  the  ratio  of  1:20. 

'  This  is  exactly  the  figure  of  the  estimate  which  I  gave  in  The 
Ecovomic  Consequences  of  the  Peace  (p.  160).  But  I  there 
added:  "I  feel  much  more  confidence  in  the  approximate  accuracy 
of  the  total  figure  than  its  division  between  the  different 
claimants."  This  proviso  was  necessary,  as  I  had  over-estimated 
the  claims  of  France  and  under-estimated  those  of  the  British 
Empire  and  of  Italy. 


THE  KEPAEATION  BILL  127 

(on  the  analogy  of  the  rate  for  francs),  Belgian 
francs  at  the  same  rate  as  French  francs,  Italian 
lire  at  twice  this  rate,  Serbian  dinars  at  four  times 
this  rate,  and  Japanese  yen  at  par. 

Milliard  marks 
(gold). 

France    99 

British  Empire 54 

Italy    27 

Belgium    K^^/^ 

Japan    1^/^ 

Jugo-Slavia    9i/^ 

Roumania     14 

Greece     2 


2231/2 


There  are  omitted  from  this  table  Poland  and 
Czecho-Slovakia,  of  which  the  claims  are  probably 
inadmissible,  the  United  States,  which  submitted 
no  claim,  and  certain  minor  claimants  shown  in 
Appendix  No.  3. 

In  round  figures,  therefore,  we  may  put  the 
claims  as  lodged  before  the  Reparations  Commis- 
sion at  about  225  milliard  gold  marks,  of  which 
95  milliards  was  in  respect  of  pensions  and  allow- 
ances, and  130  milliards  for  claims  under  other 
heads. 

The  Reparation  Commission  in  announcing  its 
decision  did  not  particularize  as  between  different 
claimants  or  as  between  different  heads  of  claim, 


128  A  EEVISION   OF   THE   TEEATY 

and  merely  stated  a  lump  sum  figure.  Their  fig- 
ure was  132  milliards ;  that  is  to  say,  about  58  per 
cent  of  the  sums  claimed.  This  decision  was  in 
no  way  concerned  with  Germany's  capacity  to  pay, 
and  was  simply  an  assessment,  intended  to  be 
judicial,  as  to  tbe  sum  justly  due  under  the  heads 
of  claim  established  by  the  Treaty  of  Versailles. 

The  decision  was  unanimous,  but  only  in  face  of 
sharp  dilTerences  of  opinion.  It  is  not  suitable  or 
in  accordance  with  decency  to  set  up  a  body  of 
interested  representatives  to  give  a  judicial  de- 
cision in  their  own  case.  This  arrangement  was 
an  offspring  of  the  assumption  which  runs  through 
the  Treaty  that  the  Allies  are  incapable  of  doing 
wrong,  or  even  of  partiality. 

Nothing  has  been  published  in  England  about 
the  discussions  which  led  up  to  this  conclusion. 
But  M.  Poincare,  at  one  time  President  of  the 
Reparation  Commission  and  presumably  well-in- 
formed about  its  affairs,  has  lifted  a  corner  of  the 
veil  in  an  article  published  in  the  Revue  des  Deux 
Mondes  for  May  15,  1921.  He  there  divulges  the 
fact  that  the  final  result  was  a  compromise  be- 
tween the  French  and  the  British  representatives, 
the  latter  of  whom  endeavored  to  fix  the  figure  at 
104  milliards,  and  defended  this  adjudication  with 
skilful  and  even  passionate  advocacy.^ 

'  "Elle  avait  et6  le  r^sultat  d'un  compromis  assez  p^nible  entre 
la  del^gue  francais,  I'honorable  M.  Dubois,  et  le  reprcsentant 
anglais,  Sir  John  Bradbury,  depuis  lors  demissionnaire,  qui  vou- 


THE   REPARATION   BILL  129 

When  the  decision  of  the  Reparation  Commis- 
sion was  first  announced,  and  was  found  to  abate 
so  largely  tlie  claims  lodged  with  it,  I  hailed  it, 
led  away  a  little  perhaps  by  its  very  close  agree- 
ment with  my  own  predictions,  as  a  great  triumph 
for  justice  in  international  affairs.  So,  in  a  meas- 
ure, I  still  think  it.  The  Reparation  Commission 
went  a  considerable  way  in  disavowing  the  verac- 
ity of  the  claims  of  the  Allied  Governments.  In- 
deed, their  reduction  of  the  claims  for  items  other 
than  pensions  and  allowances  must  have  been  very 
great  since  the  claims  for  pensions,  being  capable 
of  more  or  less  exact  calculation,^  can  hardly  have 
been  subject  to  an  initial  error  of  anything  ap- 
proaching 42  per  cent.  If,  for  example,  they  re- 
duced the  claim  for  pensions  and  allowances  from 
95  to  80  milliards,  they  must  have  reduced  the 
other  claims  from  130  milliards  to  52  milliards, 
that  is  to  say,  by  60  per  cent.  Yet  even  so,  on 
the  data  now  available,  I  do  not  believe  that  their 
adjudication  could  be  maintained  before  an  im- 
partial tribunal.  The  figure  of  104  milliards,  at- 
tributed by  M.  Poincare  to  Sir  John  Bradbury,  is 
j)robably  the  nearest  we  shall  get  to  a  strictly  im- 
partial assessment. 

lait  s'pn  tptiir  au  chiffre  de  cent  quatre  milliards  ct  qui  avait 
d<'feiidu  la  these  du  gouvernemcnt  britannique  avee  une  liabilet6 
passinniK^e." 

'  Tlic  ohief  question  of  lepitimate  pontrovorsy  in  this  connec- 
tion was  tliat  of  the  rate  of  exchange  for  converting  paper  franca 
Into  gold  marks. 


130  A  REVISION"   OF   THE   TREATY 

To  complete  our  summary  of  the  facts  two  par- 
ticulars must  be  added.  (1)  The  total,  as  assessed 
by  the  Reparation  Commission,  comprehends  the 
total  claim  against  Germany  and  her  Allies,  It 
includes,  that  is  to  say,  the  damage  done  by  the 
armies  of  Austria-Hungary,  Turkey,  and  Bul- 
garia, as  well  as  by  those  of  Germany.  Pay- 
ments, if  any,  made  by  Germany's  Allies  must, 
presumably,  be  deducted  from  the  sum  due.  But 
Annex  I.  of  the  Reparation  Chapter  of  the  Treaty 
of  Versailles  is  so  drafted  as  to  render  Germany 
liable  for  the  whole  amount.  (2)  This  total  is  ex- 
clusive of  the  sum  due  under  the  Treaty  for  the 
reimbursement  of  sums  lent  to  Belgium  by  her 
Allies  during  the  war.  At  the  date  of  the  London 
Agreement  (May  1921)  Germany's  liability  under 
this  head  was  provisionally  estimated  at  3  mil- 
liard gold  marks.  But  it  had  not  then  been  de- 
cided at  what  rate  these  loans,  which  were  made 
in  terms  of  dollars,  sterling,  and  francs,  should 
be  converted  into  gold  marks.  The  question  was 
referred  for  arbitration  to  Mr.  Boyden,  the 
United  States  Delegate  on  the  Reparation  Com- 
mission, and  at  the  end  of  September  1921  he  an- 
nounced his  decision  to  the  effect  that  the  rate  of 
conversion  should  be  based  on  the  rate  of  ex- 
change prevailing  at  the  date  of  the  Armistice. 
Including  interest  at  5  per  cent,  as  provided  by 
the  Treaty,  I  estimate  that  this  liability  amounts 


PAYMENTS  PRIOR  TO   IMAY   1921  131 

at  the  end  of  1921  to  about  6  milliard  gold  marks, 
of  which  slightly  more  than  a  third  is  due  to  Great 
Britain  and  slightly  less  than  a  third  each  to 
France  and  the  United  States  respectively. 

I  take,  therefore,  as  my  final  conclusion  that 
the  best  available  estimate  of  the  sum  due  from 
Germany,  under  the  strict  letter  of  the  Treaty  of 
Versailles,  is  110  milliard  gold  marks,  which  may 
be  divided  between  the  main  categories  of  claim 
in  the  proportions — 74  milliards  for  pensions  and 
allowances,  30  milliards  for  direct  damage  to  the 
property  and  persons  of  civilians,  and  6  milliards 
for  war  debt  incurred  by  Belgium. 

This  total  is  more  than  Germany  can  pay.  But 
the  claim  exclusive  of  pensions  and  allowances 
should  be  within  her  capacity.  The  inclusion  of 
a  demand  for  pensions  and  allowances  was  the 
subject  of  a  long  struggle  and  a  bitter  controversy 
in  Paris.  I  have  argued  that  those  were  right 
who  maintained  that  this  demand  was  inconsistent 
with  the  terms  on  which  Germany  surrendered 
at  the  Armistice.  I  return  to  this  subject  in  the 
next  chapter. 

EXCURSUS  V 

RECEIPTS  AXD  EXPENSES  PRIOR  TO  MAY  1,  1921 

The  provision  in  the  Treaty  of  Versailles  that 
Germany,  subject  to  certain  deductions,  was  to 


132  A  REVISION-  OF  THE  TREATY 

pay  $5000  millions  (gold)  before  May  1,  1921, 
was  so  remarkably  wide  of  facts  and  possibilities, 
that  for  some  time  past  no  one  lias  said  much 
about  this  offspring  of  the  unimaginative  imag- 
inations of  Paris.  As  it  was  totally  abandoned  by 
the  London  Agreement  of  May  5, 1921,  there  is  no 
need  to  return  to  what  is  an  obsolete  controversy. 
But  it  is  interesting  to  record  what  payments  Ger- 
many did  actually  eJffect  during  the  transitional 
period. 

The  following  details  are  from  a  statement  pub- 
lished by  the  British  Treasury  in  August  1921 : 

Approximate  Statement  by  the  Reparation  Commis- 
sion OF  Deliveries  made  by  Germany  from  No- 
vember 11,  1918,  to  April  30,  1921 

Gold  Marks. 

Receipts  in  cash 99,334,000 

Deliveries  in  kind: 

Ships   270,331,000 

Coal  437,160,000 

Dyestuffs    36,823,000 

Other  deliveries 937,040,000 

1,780,688,000 
Immovable  property  and  assets 

not  yet  encashed 2,754,104,000 


4,534,792,000 
say  $1,130,000,000 


The  immovable  property  consists  chiefly  of  the 
Saar  coalfields  surrendered  to  France,  State  prop- 


PAYMENTS  PRIOR  TO  MAY   1921  133 

erty  in  Schleswig  surrendered  to  Denmark,  and 
State  property  (with  certain  exceptions)  in  the 
territory  transferred  to  Poland. 

The  whole  of  the  cash,  two-thirds  of  the  ships, 
and  a  quarter  of  the  dyestuffs  accrued  to  Great 
Britain.  A  share  of  the  ships  and  dyestuffs,  the 
Saar  coalfields,  the  bulk  of  the  coal  and  of  the 
"other  deliveries,"  includinj^  valuable  materials 
left  behind  by  the  German  Army,  accrued  to 
France.  Some  ships,  a  proportion  of  the  coal  and 
otlier  deliveries,  and  the  compensation,  payable  by 
Denmark  in  respect  of  Schleswig:,  fell  to  Belgium. 
Italy  obtained  a  portion  of  the  coal  and  ships  and 
some  other  trifles.  The  value  of  German  State 
property  in  Poland  could  not  be  transferred  to 
any  one  but  Poland. 

But  the  sums  thus  received  were  not  available 
for  Reparation.  There  had  to  be  deducted  from 
them  (1)  the  sums  returned  to  Germany  under  the 
Spa  Agreement,  namely  360,000,000  gold  marks,^ 
and  (2)  the  costs  of  the  Armies  of  Occupation. 

In  September  1921  the  Reparation  Commission 
published  an  approximate  estimate,  as  follows,  of 
the  cost  of  occupation  of  German  territory  by  the 
Allied  Armies  from  the  Armistice  until  ]\lay  1, 
1921: 


'  Mado  up  of  about  £5,500,000  advanced  by  Groat  Hritain, 
772.000,000  francs  by  France,  Ofl,000,000  francs  by  Belgium, 
147,000,000  lire  by  Italy,  and  66,000,000  francs  by  Luxembourg. 


134 


A  REVISION   OF   THE  TREATY 


United  (States 
Great  Britain 

France   

Belgium  .... 
Italy 


Total  cost. 


$278,067,610 

£52,881,298 

FrB.  2,304,850,470 

Frs.  378,731,390 

Frs.  15,207,717 


Cost  ppr  man 
per  day. 


$4.50 

143. 

Frs.  15.25 

Frs.   10.50 

Frs.  22 


The  conversion  of  these  sums  into  gold  marks 
raises  the  usual  controversy  as  to  the  rates  at 
which  conversion  is  to  be  effected.  The  total 
was  estimated,  however,  at  three  milliard  gold 
marks,^  of  which  one  milliard  was  owed  to  the 
United  States,  one  milliard  to  France,  900  millions 
to  Great  Britain,  175  millions  to  Belgium,  and  5 
millions  to  Italy.  On  May  1,  1921,  France  had 
about  70,000  soldiers  on  the  Rhine,  Great  Britain 
about  18,000,  and  the  United  States  a  trifling  num- 
ber. 

The  net  result  of  the  transitional  period  was, 
therefore,  as  follows: 

(1)  Putting  on  one  side  State  property  trans- 
ferred to  Poland,  the  whole  of  the  transferable 

'  The  German  authorities  have  published  a  somewhat  higher 
figure.  According  to  a  memorandum  submitted  to  the  Keichstag 
in  September  1921  by  their  Finance  Minister,  the  costs  of  the 
Armies  of  Occupation  and  the  Khine  Provinces  Commission  up 
to  the  end  of  March  1921  were  mks.  3,936,954,542  (gold),  in 
respect  of  expenditure  met  in  the  first  instance  by  the  occupying 
Powers,  and  subsequently  recoverable  from  Germany,  plus  mks. 
7,313,911,829  (paper),  in  respect  of  expenditure  directly  met  by 
the  German  authorities. 


PAYMENTS  PRIOR  TO  MAY   1921  135 

wealth  obtained  from  Germany  in  the  two  and  a 
half  years  following  the  Armistice  under  all  the 
rigors  of  the  Treaty,  designed  as  they  were  to 
extract  every  available  liquid  asset,  just  about 
covered  the  costs  of  collection,  that  is  to  say,  the 
expenses  of  the  Armies  of  Occupation,  and  left 
nothing  over  for  Reparation. 

(2)  But  as  the  United  States  has  not  yet  been 
paid  the  milliard  owing  to  her  for  her  Army,  the 
other  Allies  have  received  between  them  on  bal- 
ance a  surplus  of  about  one  milliard.  This  sur- 
plus was  not  divided  amongst  them  equally.  Great 
Britain  had  received  450-500  million  gold  marks 
less  than  her  expenses,  Belgium  300-350  million 
more  than  her  expenses,  and  France  1000-1200 
millions  more  than  her  expenses.^ 

Under  the  strict  letter  of  the  Treaty  those  Al- 
lies who  had  received  less  than  their  share  might 
have  claimed  to  be  paid  the  difference  in  cash  by 
those  who  had  received  more.  This  situation  and 
the  allocation  of  the  milliard  paid  by  Germany 
between  May  and  August  1921  were  the  subject 
of  the  Financial  Agreement  provisionally  signed 
at  Paris  on  August  13,  1921.  This  Agreement 
chie6y  consisted  of  concessions  to  France,  partly 
by  Belgium,  who  agreed  in  etTect  to  a  partial  post- 


'  I  do  not  vouch  for  the  accuracy  of  these  figvircs,  which  are 
rough  estimates  of  my  own  on  the  basia  of  incomplete  published 
information. 


136  A  KEVISION  OF   THE  TREATY 

ponemeiit  of  her  priority  charge  on  two  milliards 
out  of  the  first  sums  received  from  Germany  for 
Reparation,  and  partly  by  Great  Britain,  who  ac- 
cepted for  the  purposes  of  internal  accounting 
amongst  the  Allies  themselves  a  lower  value  for 
the  coal  delivered  by  Germany  than  the  value  fixed 
by  the  Treaty.^  In  view  of  these  concessions 
about  future  payment,  the  first  milliard  in  cash, 
received  after  May  1,  1921,  was  divided  between 
Great  Britain  and  Belgium,  the  former  receiving 
450  million  gold  marks  in  discharge  of  the  balance 
still  due  to  her  in  respect  of  the  costs  of  occupa- 
tion, and  the  balance  falling  to  the  latter  as  a  fur- 
ther instalment  of  her  agreed  priority  charge. 
This  Agreement  was  represented  in  the  French 
press  as  laying  new  burdens  upon  France,  or  at 
least  as  withdrawing  existing  rights  from  her. 
But  this  was  not  the  case.  The  Agreement  was 
directed  throughout  to  moderating  the  harshness 
with  which  the  letter  of  the  Treaty  and  the  ar- 
rangements of  Spa  would  have  operated  against 
France.^ 

*  On  the  other  hand  Great  Britain's  view  was  adopted  aa  to 
the  valuation  of  shipping. 

'In  view  of  the  political  difficulties  in  which  this  Agreement 
involved  M.  Briand's  Cabinet,  the  matter  was  apparently  adjusted 
by  Great  Britain  and  Belgium  receiving  their  quotas  as  above, 
"subject  to  adjustment  of  the  final  settlement"  of  the  questions 
dealt  with  in  the  Agreement.  The  net  result  on  September  30, 
1921,  was  that,  including  the  above  sum,  Great  Britain  had  been 
repaid  £5,445,000  in  respect  of  the  Spa  coal  advances,  and  had 
also  received,  or  was  in  course  of  collecting,  about  £43,000,000 


PAYMENTS   TRIOR   TO   IMAY   1921  137 

The  actual  value  of  these  deliveries  is  a  strik- 
ing example  of  how  far  the  value  of  deliverable 
articles  falls  below  the  estimates  which  used  to  be 
current.  The  Reparation  Commission  have  stated 
that  the  credit  which  Germany  will  receive  in  re- 
spect of  her  Mercantile  jMarine  will  amount  to 
about  755  million  gold  marks.  This  figure  is  low, 
partly  because  many  of  the  ships  were  disposed  of 
after  the  slump  in  tonnage.^  Nevertheless,  this 
was  one  of  the  tangible  assets  of  great  value,  which 
it  was  customary  at  one  time  to  invoke  in  answer 
to  those  who  disputed  Germany's  capacity  to  make 
vast  payments.  What  does  it  amount  to  in  rela- 
tion to  the  bill  against  her?  The  bill  is  138  mil- 
liard gold  marks,  on  which  interest  at  6  per  cent 
for  one  year  is  8280  million  gold  marks.  That  is 
to  say,  Germany's  Mercantile  Marine  in  its  en- 
tirety, of  which  the  surrender  humbled  so  much 
pride  and  engulfed  so  vast  an  effort,  would  about 
meet  a  month's  charges. 

towards  the  expenses  of  the  Army  of  Occupation  (approximately 
£50,000,000).  Tlius,  aa  the  result  of  three  years'  Koparations, 
Great  Britain's  costs  of  collection  had  been  about  £7,000,000 
more  tlian  her  receipts. 

*  To  value  these  fhipa  at  what  they  fetched  during  the  slump, 
yet  to  value  Germany's  liability  for  submarine  destruction  at 
what  the  ships  cost  to  replace  during  tlie  boom,  appears  to  be 
unjust.  My  estimate  (in  The  Economio  Consequences  of  the 
Peace,  p.  174)  of  the  value  of  the  ships  to  be  delivered  was 
$600,000,000. 


138  A  KEVISION"  OF  THE   TREATY 

EXCURSUS  VI 
THE  DIVISION  OF  EECEIPTS  AMONGST  THE  ALLIES 

The  Allied  Governments  took  advantage  of  the 
Spa  meeting  (July  1920)  to  settle  amongst  them- 
selves a  Reparation  question  which  had  given 
much  trouble  in  Paris  and  had  been  left  unsolved  ^ 
— namely,  the  proportions  in  which  the  Repara- 
tion receipts  are  to  be  divided  between  the  various 
Allied  claimants.-  The  Treaty  provides  that  the 
receipts  from  Germany  will  be  divided  by  the 
Allies  "in  proportions  which  have  been  deter- 
mined upon  by  them  in  advance,  on  a  basis  of  gen- 
eral equity  and  of  the  rights  of  each."  The 
failure,  described  by  M.  Tardieu,  to  reach  an 
agreement  in  Paris,  rendered  the  tense  of  this 
provision  inaccurate,  but  at  Spa  it  was  settled  as 
follows : 

France    52  per  cent. 

British  Empire  ^   22        '* 

-       Italy    10 

Belgium    8 

Japan  and  Portugal . .       %  of  1  per  cent  each ; 

^M.  Tardieu  {The  Truth  about  the  Treaty,  pp.  346-348)  has 
given  an  accoitnt  of  the  abortive  discussion  of  this  question  at  the 
Peace  Conference.  ITie  French  obtained  at  Spa  a  ratio  very 
slightly  more  favorable  to  themselves  than  that  which  they  had 
claimed  and  Mr.  Lloyd  George  had  rejected  at  Paris. 

'  For  a  summary  of  the  text  of  this  Agreement  see  Appendix 
No.  1. 

•  At  the  conference  of  Dominion  Prime  Ministers  in  July  1921 


THE   DIVISION    OF   THE   RECEIPTS  139 

the  remaining-  6V-i  per  cent  being  reserved  for  the 
Serbo-Croat-Slovene  State  and  for  Greece,  Ru- 
mania, and  other  Powers  not  signatories  of  the 
Spa  Agreement/ 

This  settlement  represented  some  concession  on 
the  part  of  Great  Britain,  whose  proportionate 
claim  was  greatly  increased  by  the  inclusion  of 
pensions  beyond  what  it  would  have  been  on  the 
basis  of  Reparation  proper;  and  the  proportion 
claimed  by  Mv.  Lloyd  George  in  Paris  was  prob- 
ably nearer  the  truth  (namely  that  the  French  and 
British  shares  should  be  in  the  proportion  5  to 
3).  I  estimate  that  France  45  per  cent,  British 
Empire  33  per  cent,  Italy  10  per  cent,  Belgium 
6  per  cent,  and  the  rest  6  per  cent  would  have  been 
more  exactly  in  accordance  with  the  claims  of  each 
under  the  Treaty.  In  view  of  all  the  facts,  how- 
ever, the  Spa  division  may  be  held  to  have  done 
substantial  justice  on  the  whole. 

At  the  same  time  the  priority  to  Belgium  to  the 
extent  of  $500,000,000  was  confirmed;  and  it  was 

this  share  was  furtlier  divided  as  follows  between  the  constituent 
portions  of  the  Empire: 


United  Kingdom   86.85 

Minor   colonies 80 

Canada    4  35 

Australia    4.35 


New  Zealand    1.75 

Soutli  Africa 60 

Newfoundland    10 

India   1 .20 


'  The  Spa  Agreement  also  made  provision  that  half  the  receipts 
from  Bulgaria  and  from  the  constituent  j)arts  of  tlie  former 
Austro-Hungarian  Empire  sliould  be  divided  in  the  above  propor- 
tions, and  tliat,  of  the  other  lialf,  40  per  cent  should  go  to  Italy 
and  60  per  cent  to  Greece,  Rumania,  and  Jugoslavia. 


140  A  EEVISION  OF   THE  TREATY 

agreed  that  the  loans  made  to  Belgium  during  the 
war  by  the  other  Allies,  for  which  Germany  is 
liable  under  Article  232  ^  of  the  Treaty,  should 
be  dealt  with  out  of  the  moneys  next  received. 
These  loans,  including  interest,  will  amount  by 
the  end  of  1921  to  something  in  the  neighborhood 
of  $1,500,000,000,  of  which  $550,000,000  will  be  due 
to  Great  Britain,  $500,000,000  to  France,  and 
$450,000,000  to  the  United  States. 

Under  the  Spa  Agreement,  therefore,  sums  re- 
ceived from  Germany  in  cash,  and  credits  in  re- 
spect of  deliveries  in  kind  were  to  be  applied  to 
the  discharge  of  her  obligations  in  the  following 
order : 

1.  The  cost  of  the  Armies  of  Occupation,  esti- 
mated at  $750,000,000  up  to  May  1,  1921. 

2.  Advances  to  Germany  for  food  purchases  un- 
der the  Spa  Agreement,  say  $90,000,000. 

3.  Belgian  priority  of  $500,000,000. 

4.  Repayment  of  Allied  advances  to  Belgium, 
say  $1,500,000,000. 

This  amounts  to  about  $2,850,000,000  altogether, 
of  which  I  estimate  that  about  $750,000,000  is  due 
to  France,  $850,000,000  to  Great  Britain,  $550,- 

*  "Germany  undertakes  ...  to  make  reimbursement  of  all 
sums  which  Belgium  has  borrowed  from  the  Allies  and  Associated 
Governments  up  to  November  11,  1018,  together  with  interest  at 
the  rate  of  5  per  cent  per  annum  on  such  sums."  The  priority 
for  this  repayment  arranged  at  Spa  is  a  little  different  from  the 
procedure  contemplated  in  the  Treaty,  which  provided  for  repay- 
ment not  later  than  May  1,  1926. 


THE   DI\T[SION   OF   THE   RECEIPTS  141 

000,000  to  Belgium,  and  $700,000,000  to  the  United 
States. 

Very  few  people,  I  think,  have  appreciated  how 
large  a  sum  is  due  to  the  United  States  under  the 
strict  letter  of  the  Agreement.  Since  France  has 
already  received  almost  two-thirds  of  her  share  as 
above,  whilst  Belgium  has  had  about  one-third, 
Great  Britain  less  than  one-third,  and  the  United 
States  nothing,  it  follows  that,  even  on  the  most 
favorable  hypothesis  as  to  Germany's  impending 
payments,  comparatively  small  sums  are  strictly 
due  to  France  in  the  near  future. 

The  Financial  Agreement  of  August  13,  1921, 
was  aimed  at  modifying  the  harshness  of  these 
priority  provisions  towards  France.^  The  details 
of  this  Agreement  have  not  yet  been  published,  but 
it  is  said  to  make  a  somewhat  different  provision 
from  that  contemplated  at  Spa  for  the  repayment 
of  Allied  war  advances  to  Belgium. 

The  reception  of  this  Agreement  by  the  French 
public  was  a  good  illustration  of  the  effect  of 
keeping  people  in  the  dark.  The  effect  of  the  Spa 
Agreement  had  never  been  understood  in  France, 
with  the  result  that  the  August  Financial  Agree- 
ment, which  much  improved  France's  position, 
was  believed  to  interfere  seriously  with  her  ex- 
isting rights.  M.  Doumer  never  had  the  pluck  to 
tell  his  public  the  truth,  although,  if  he  had,  it 

*  See  above,  p.  135. 


142  A  EEVISION"   OF   THE   TREATY 

would  have  been  clear  that,  in  signing  the  Agree- 
ment provisionally,  he  was  acting  in  the  interests 
of  his  country. 

The  mention  of  the  United  States  invites  atten- 
tion to  the  anomalous  position  of  that  country 
under  the  Peace  Treaty.  Her  failure  to  ratify 
the  Treaty  forfeits  none  of  her  rights  under  it, 
either  in  respect  of  her  share  of  the  costs  of  the 
Army  of  Occupation  (which,  however,  is  offset  to 
a  small  extent  by  the  German  ships  she  has  re- 
tained), or  in  respect  of  the  repayment  of  her  war 
advances  to  Belgium.^  It  follows  that  the  United 
States  is  entitled,  on  the  strict  letter,  to  a  con- 
siderable part  of  the  cash  receipts  from  Germany 
in  the  near  future. 

There  is,  however,  a  possible  offset  to  these 
claims  which  has  been  mentioned  already  (p.  78) 
but  must  not  be  overlooked  here.  Under  the 
Treaty,  private  German  property  in  an  Allied 
country  is,  in  the  case  of  countries  adopting  the 
Clearing  House  Scheme,  applied  in  the  first  in- 
stance to  debts  owing  from  German  nationals  to 
the  nationals  of  the  Allied  country  in  question,  and 

'  Article  1  of  the  Treaty  of  Peace  between  Germany  and  the 
United  States,  signed  on  August  25,  1921,  and  since  ratified, 
expressly  stipulates  that  Germany  undertakes  to  accord  to  the 
United  States  all  the  rights,  privileges,  indemnities,  reparations, 
and  advantages  specified  in  the  joint  resolution  of  Congress  of 
July  2,  1921,  "Including  all  the  rights  and  advantages  stipulated 
for  the  benefit  of  the  United  Slates  under  the  Treaty  of  Versailles 
which  the  United  States  shall  enjoy  notwithstanding  the  fact  that 
8uch  Treaty  has  not  been  ratified  by  the  United  States." 


THE  DIVISION   OF   THE  EECEIPTS  143 

the  balance,  if  any,  is  retained  for  Reparation. 
"What  is  to  happen  in  the  case  of  similar  German 
assets  in  the  United  States  is  still  undetermined. 
The  surjDlus  assets,  the  value  of  which  may  be 
about  $300,000,000,^  will  be  retained,  until  Con- 
gress determines  otherwise,  by  the  Enemy  Prop- 
erty Custodian.  There  have  been  negotiations 
from  time  to  time  for  a  loan  in  favor  of  Germany 
on  the  security  of  these  assets,  but  the  legal  posi- 
tion has  rendered  progress  impossible.  At  any 
rate  this  important  German  asset  is  still  under 
American  control. 

'  According  to  a  statement  publislied  in  Washington  in  August 
1921  tile  Custodian  liad  in  his  handa  German  property  to  tlie 
value  of  $314,179,463. 


CHAPTER  V 
The  Legality  of  the  Claim  for  Pensions 

"The  application  of  morals  to  international  polities  is  more  a 
thing  to  be  desired  than  a  thing  which  has  been  in  operation. 
Also,  when  1  am  made  a  participant  in  crime  along  with  many 
millions  of  other  people,  I  more  or  less  shrug  my  shoulders." — 
Letter  from  a  friendly  critic  to  the  author  of  The  Economic  Con- 
sequences of  the  Peace. 

We  have  seen  in  the  preceding  chapter  that  the 
claim  for  Pensions  and  Allowances  is  nearly- 
double  that  for  Devastation,  so  that  its  inclusion 
in  the  Allies'  demands  nearly  trebles  the  bill.  It 
makes  the  difference  between  a  demand  which  can 
be  met  and  a  demand  which  cannot  be  met.  There- 
fore it  is  important. 

In  The  Economic  Consequences  of  the  Peace  I 
gave  reasons  for  the  opinion  that  this  claim  was 
contrary  to  our  engagements  and  an  act  of  inter- 
national immorality.  A  good  deal  has  been  writ- 
ten about  it  since  then,  but  I  cannot  admit  that 
my  conclusion  has  been  seriously  disputed.  Most 
American  writers  accept  it ;  most  French  writers 
ignore  it;  and  most  English  writers  try  to  show, 
not  that  the  balance  of  evidence  is  against  me,  but 
that  there  are  a  few  just  plausible,  or  just  not- 
negligible,  observations  to  be  made  on  the  other 

144 


LEGALITY  OF  THE  CLAIIM   FOR   PENSIONS      145 

side.  Their  contention  is  that  of  the  Jesuit  pro- 
fessors of  Probabilism  in  the  seventeenth  century, 
namely  that  the  Allies  are  justified  unless  it  is  ab- 
solutely certain  that  they  are  wrong,  and  that  any 
probability  in  their  favor,  however  small,  is 
enough  to  save  them  from  mortal  sin. 

But  most  people  in  the  countries  of  Germany's 
former  enemies  are  not  ready  to  excite  themselves 
very  much,  even  if  my  view  is  accepted.  The  pas- 
sage at  the  head  of  this  chapter  describes  a  com- 
mon attitude.  International  politics  is  a  scoun- 
drel's game  and  always  has  been,  and  the  private 
citijen  can  scarcely  feel  himself  personally  re- 
sponsible. If  our  enemy  breaks  the  rules,  his  ac- 
tion may  furnish  us  with  an  appropriate  oppor- 
tunity for  expressing  our  feelings;  but  this  must 
not  be  taken  to  commit  us  to  a  cool  opinion  that 
such  things  have  never  happened  before  and  must 
never  happen  again.  Sensitive  and  honorable  pa- 
triots do  not  like  it,  but  they  ''more  or  less  shrug" 
their  shoulders. 

There  is  some  common  sense  in  this.  I  cannot 
deny  it.  International  morality,  interpreted  as 
a  crude  legalism,  might  be  very  injurious  to  the 
world.  It  is  at  least  as  true  of  these  vast-scale 
transactions,  as  of  private  affairs,  that  we  judge 
wrongly  if  we  do  not  take  into  account  everything. 
And  it  is  superficial  to  appeal,  the  other  way 
round,  to  the  principles  which   do   duty  when 


146  A  REVISIO]^  OF   THE  TREATY 

Propaganda  is  blistering  herd  emotion  with  its 
brew  of  passion,  sentiment,  self-interest,  and 
moral  fiddlesticks. 

But  whilst  I  see  that  nothing  rare  has  happened 
and  that  men's  motives  are  much  as  usual,  1  do 
still  think  that  this  particular  act  was  an  excep- 
tionally mean  one,  made  worse  by  hypocritical 
professions  of  moral  purpose.  My  object  in  re- 
turning to  it  is  partly  historical  and  partly  prac- 
tical. New  material  of  high  interest  is  available 
to  instruct  us  about  the  course  of  events.  And  if 
for  practical  reasons  we  can  agree  to  drop  this 
claim,  we  shall  make  a  settlement  easier. 

Those  who  think  that  it  was  contrary  to  the 
Allies'  engagements  to  charge  pensions  against 
the  enemy  base  this  opinion  on  the  terms  notified 
to  the  German  Government  by  President  Wilson, 
with  the  authority  of  the  Allies,  on  November  5, 
1918,  subject  to  which  Germany  accepted  the 
Armistice  conditions.^  The  contrary  opinion  that 
the  Allies  were  fully  entitled  to  charge  pensions 
if  they  considered  it  expedient  to  do  so,  has  been 
supported  by  two  distinct  lines  of  argument ;  first 
that  the  Armistice  conditions  of  November  11, 
1918,  were  not  subject  to  President  Wilson's  noti- 
fication of  November  5,  1918,  but  superseded  it, 

*  I  have  given  the  exact  text  of  the  relevant  passages  in  Tfce 
Economic  Consequences  of  the  Peace,  chapter  v. 


LEGALITY  OF  THE  CLAIM  FOR  PENSIONS      147 

more  particularly  regarding  Reparation;  and  al- 
ternatively that  the  wording  of  President  Wilson's 
notification  properly  understood  does  not  exclude 
Pensions. 

The  first  line  of  argument  was  adopted  by  M. 
Klotz  and  the  French  Government  during  the 
Peace  Conference,  and  has  been  approved  more 
recently  by  M.  Tardieu.^  It  was  repudiated  by  the 
whole  of  the  American  Delegation  at  Paris,  and 
never  definitely  supported  by  the  British  Govern- 
ment. Eesponsible  writers  about  the  Treaty, 
other  than  French,  have  not  admitted  it.^  It  was 
also  explicitly  abandoned  by  the  Peace  Confer- 
ence itself  in  its  reply  to  the  German  observa- 
tions on  the  first  draft  of  the  Treaty.  The  sec- 
ond line  of  argument  was  that  of  the  British  Gov- 
ernment during  the  Peace  Conference,  and  it  was 
an  argument  on  these  lines  which  finally  converted 
President  Wilson.  I  will  deal  with  the  two  argu- 
ments in  turn. 

1.  Various  persons  have  published  particulars, 
formerly  confidential,  which  allow  us   to  recon- 

'  The  Truth  about  the  Treaty,  p.  208. 

*  E.g.,  The  llistory  of  the  Peace  Conference  of  Paris,  published 
under  the  auspices  of  the  Institute  of  International  Affairs  de- 
livers judgment  as  follows  (vol.  ii  ,  p.  43)  :  "It  is  this  statement 
then  {i.e.,  President  Wilson's  notification  of  Nov.  5,  1018)  which 
must  be  taken  as  the  ruling  document  in  any  discussion  as  to 
what  the  Allies  were  entitled  to  claim  by  way  of  reparation  in 
the  Treaty  of  I'eace,  and  it  is  diflicult  to  interpret  it  otherwise 
than  as  a  deliberate  limitation  of  their  undoubted  right  to 
recover  the'whole  of  their  war  costs." 


148  A  REVISION  OF  THE  TEEATY 

struct  the  course  of  the  discussions  about  the 
Armistice.    These  begin  with  the  examination  of 
the  Armistice  Terms  by  the  AUied  Council  of  War 
on  November  1,  1918.^ 
The  first  point  which  emerges  is  that  the  reply 

'  Tlie  following  particulars  are  taken  from  Les  Negociations 
Secretes  el  les  Quatre  Armistices  avec  pieces  justificatives  by 
"Mermeix,"  published  at  Pans  by  Ollendorff,  1921.  This  remark- 
able volume  luis  not  received  the  attention  it  deserves.  The 
greater  part  of  it  consists  of  a  verbatim  transcript  of  the  secret 
Braces  Verbaux  of  those  meetings  of  the  Supreme  Council  of  the 
Allies  which  were  concerned  with  the  Armistice  Terms.  On  the 
face  of  it  this  disclosure  is  authentic  and  is  corroborated  in  part 
by  M.  Tardieu.  There  are  many  passages  of  extraordinary  in- 
terest on  points  not  connected  with  my  present  topic,  as  for 
example  the  discussion  of  the  question  whether  the  Allies  should 
insist  on  the  surrender  of  the  German  fleet  if  the  Germans  made 
trouble  about  it.  Marshal  Foch  emerges  from  this  record  very 
honorably,  as  determined  that  nothing  unnecessary  should  be  de- 
manded of  the  enemy,  and  that  no  blood  should  be  spilt  for  a 
vain  or  trifling  object.  Sir  Douglas  Haig  was  of  the  same  opinion. 
In  reply  to  Col.  House,  Foch  spoke  thus:  "If  they  accept  the 
terms  of  the  Armistice  we  are  imposing  on  them,  it  is  a  capitula- 
tion. Such  a  capitulation  gives  us  everything  we  could  get  from 
the  greatest  victory.  In  such  circumstances  I  cannot  admit  that 
1  have  tlie  right  to  risk  the  life  of  a  single  man  more."  And 
again  on  October  31:  "If  our  conditions  are  accepted  we  can  wish 
for  nothing  better.  We  make  war  only  to  attain  our  ends,  and 
we  do  not  want  to  prolong  it  uselessly."  In  reply  to  a  proposal 
by  Mr.  Balfour  that  the  Germans  in  evacuating  the  East  should 
leave  one-third  of  their  arms  behind  them,  Foch  observed:  "The 
intrusion  of  all  these  clauses  makes  our  document  chimerical, 
since  the  greater  part  of  the  conditions  are  incapable  of  being 
executed.  We  should  do  well  to  be  sparing  with  these  unrealizable 
injunctions."  Towards  Austria  also  he  was  humane  and  feared 
the  prolongation  of  the  blockade  which  the  politicians  were  pro- 
posing. "1  intervene,"  he  said  on  October  31,  1918,  "in  a  matter 
which  ig  not  a  military  one  strictly  speaking.  We  are  to  main- 
tain the  blockade  until  Peace,  that  is  to  cay  until  we  have  made 
a  new  Austria.  That  may  take  a  long  time;  which  means  a 
country  condemned  to  famine  and  perhaps  impelled  to  anarchy." 


LEGALITY  OF  THE   CLAIM   FOR  PENSIONS      149 

of  the  Allied  Governments  to  President  "Wilson 
(Avhieh  afterwards  furnished  the  text  of  his  noti- 
fication of  Nov.  5,  1918,  addressed  to  Germany), 
defining  their  interpretation  of  the  references  to 
Reparation  in  the  Fourteen  Points,  was  drawn  up 
and  approved  at  the  same  session  of  the  Supreme 
Council  (that  of  November  1,  2)  which  drew  up 
the  relevant  clauses  of  the  Armistice  Terms ;  and 
that  the  Allies  did  not  finally  approve  the  reply 
to  President  Wilson  until  after  that  they  had  ap- 
proved that  very  draft  of  the  Armistice  Terms 
which,  according  to  the  French  contention,  super- 
seded and  negatived  the  terms  outlined  in  the 
reply  to  President  Wilson.^ 

The  record  of  the  proceedings  of  the  Supreme 
Council  (as  now  disclosed)  lends  no  support  to 
the  existence  in  their  minds  of  the  duplicity  which 
the  French  contention  attributes  to  them.  On  the 
other  hand,  it  makes  it  clear  that  the  Council  did 
not  intend  the  references  to  Reparation  in  the 
Armistice  Terms  to  modify  in  any  way  their  reply 
to  the  President. 

The  record,  in  so  far  as  it  is  relevant  to  this 
point,  may  be  summarized  as  follows:^  M.  Cle- 
menceau  called  attention  to  the  absence  of  any  ref- 
erence in  the  first  draft  of  the  Armistice  Terms 
to  the  restitution  of  stolen  property  or  to  repa- 

*  This  is  corroborated  by  M.  Tardieu,  op.  cit.,  p.  71. 

*  See  Mermeix,  op  cit.,  pp.  226-250. 


150  A  EEVISION   OF   THE   TREATY 

ration,  Mr.  Lloyd  George  replied  that  there 
ought  to  be  some  reference  to  restitution,  but  that 
reparation  was  a  Peace  condition  rather  than  an 
Armistice  condition.  M.  Hymans  agreed  with 
Mr.  Lloyd  George.  MM.  Sonnino  and  Orlando 
went  further  and  thought  that  neither  had  any 
place  in  the  Armistice  Terms  but  were  ready  to 
accept  the  Lloyd  George-Hymans  compromise  of 
including  Restitution  but  not  Reparation.  The 
discussion  was  postponed  for  M.  Hyanans  to  draft 
a  formula.  On  its  resumption  next  day,  it  was 
M.  Clemenceau  who  produced  a  formula  consist- 
ing of  the  three  words  Reparation  des  dommages. 
M.  Hymans,  M.  Sonnino,  and  Mr.  Bonar  Law  all 
expressed  doubt  whether  this  was  in  place  in  the 
Armistice  Terms.  M.  Clemenceau  replied  that  he 
only  wanted  to  mention  the  principle,  and  that 
French  public  opinion  would  be  surprised  if  there 
was  no  reference  to  it.  Mr.  Bonar  Law  ob- 
jected: "It  is  already  mentioned  in  our  letter  to 
President  Wilson  which  he  is  about  to  communi- 
cate to  Germany.  It  is  useless  to  repeat  it."^ 
This  observation  met  with  no  contradiction,  but 
it  was  agreed  on  sentimental  grounds  and  for  the 
satisfaction  of  public  opinion  to  add  M.  Clemen- 
ceau's  three  words.     The  Council  then  passed  on 


'  This  very  important  remark  by  Mr.  Bonar  Law  is  also  quoted 
by  M  Tardieu  (op.  cit.,  p.  70)  and  is  therefore  of  undoubted 
authenticity. 


LEGALITY   OF   THE  CLAIM   FOR  PENSIONS      151 

to  other  topics.  At  the  last  momeut,  as  they  were 
about  to  disperse,  M.  Klotz  slipped  in  the  words: 
''It  would  be  prudent  to  put  at  the  head  of  the 
financial  questions  a  clause  reserving  the  future 
claims  of  the  Allies,  and  I  propose  to  you  the 
wordini:^  'without  prejudice  to  any  subsequent 
claims  and  demands  on  the  part  of  the  Allies.'  "  ^ 
It  does  not  seem  to  have  occurred  to  any  of  those 
present  that  this  text  could  be  deemed  of  mate- 
rial importance  or  otherwise  than  as  protecting 
the  Allies  from  the  risk  of  being  held  to  have  sur- 
rendered any  existing  claims  through  failure  to 
mention  them  in  this  document;  and  it  was  ac- 
cepted without  discussion.  M.  Klotz  afterwards 
boasted  that  by  this  little  device  he  had  abolished 
the  Fourteen  Points,  so  far  as  they  affected  Repa- 
ration and  Finance  (although  the  very  same  meet- 
ing of  the  Allies  had  despatched  a  Note  to  Presi- 
dent Wilson  accepting  them),  and  had  secured  to 
the  Allies  the  right  to  demand  from  Germany  the 
whole  cost  of  the  War.  But  I  think  the  world 
will  decide  that  the  Supreme  Council  was  right 
in  attaching  to  these  words  no  particular  impor- 
tance. Personal  pride  in  so  smart  a  trick  has  led 
M.  Klotz,  and  his  colleague  M.  Tardieu,  to  per- 

*  "II  sorait  prudent  do  mcttre  on  teto  doa  qiiostiong  financi&rca 
une  clause  reservant  les  revendications  futures  dcs  Allit's  et  je 
T0U8  propose  lo  texto  siiivant:  'Sous  resorve  de  toutea  revendica- 
tions et  reclamations  ulterieures  de  la  part  des  Allies.'  " 


152  A  REVISION   OF   THE   TREATY 

sist  too  long  with  a  contention  which  decent  per- 
sons have  now  abandoned. 

There  was  an  episode  which  has  lately  come  to 
light  connected  with  this  passage  which  may  be 
recounted  as  illustrating  the  pitfalls  of  the  world. 
As  M.  Klotz  only  introduced  his  form  of  words 
as  the  Council  was  breaking  up,  it  is  likely  that 
no  undue  attention  was  concentrated  on  it.  But 
ill-fortune  may  dog  any  one,  and  the  same  state 
of  alTairs  seems  to  have  led  to  one  of  the  scribes 
getting  the  words  down  wrong.  Instead  of  re- 
vendication  which  means  demand,  the  word  renon- 
ciation  which  means  concession  got  written  in  the 
text  handed  to  the  Germans  for  signature.^  This 
word  was  not  so  suitable.  But  M.  Klotz  suffered 
less  inconvenience  from  this  mistake  than  might 
have  been  expected;  since  at  the  Peace  Confer- 
ence no  one  noticed  that  the  French  text  of  the 
Armistice  Agreement  as  officially  circulated,  which 
M.  Klotz  used  in  arguing  before  the  Reparation 
Committee,  agreed  in  its  wording  with  what  he 
had  intended  it  to  be  and  not  with  the  text  which 
Germany  had  actually  signed.  Nevertheless  it  is 
the  word  renonclation  which  is  still  to  be  found  in 
the  official  texts  of  the  British  and  German  Gov- 
ernments.''^ 

'  Tliat  is  to  say,  this  text  ran,  "Sous  reserve  de  toute  renoncla- 
tion et  reclamation  iilterieure,"  instead  of  "Sous  reserve  de  toutes 
revendications  et  recJamations  iilt^rieures." 

'  I  record  this  episode  as  an  liistorical  curiosity.    In  my  opinion. 


LEGALITY   OF   THE  CLAIM   FOR  PENSIONS      153 

2.  The  other  line  oi'  argument  raises  more  subtle 
intellectual  issues  and  is  not  a  mere  matter  of 
prestidigitation.  It*  it  be  granted  that  our  rights 
are  governed  by  the  terms  of  the  Note  addressed 
to  Germany  by  President  Wilson  in  the  name  of 
the  Allies  on  November  5,  1918,  the  question  de- 
pends on  the  interpretation  of  these  terms.  As 
Mr.  Baruch  and  M.  Tardieu  have  now  published 
between  them  the  greater  part  of  the  official  re- 
ports (including  very  secret  documents)  bearing 
on  the  discussion  of  this  problem  during  the  Peace 
Conference,  we  are  in  a  better  position  than  be- 
fore to  assess  the  value  of  the  Allies'  case. 

The  pronouncements  by  the  President  which 
were  to  form  the  basis  of  Peace  provided  that 
there  should  be  **no  contributions"  and  "no  puni- 
tive damages,"  but  the  invaded  territories  of  Bel- 
gium, France,  Rumania,  Serbia,  and  Montenegro 
were  to  be  restored.  This  did  not  cover  losses 
from  submarines  or  from  air  raids.  Accordingly 
the  Allied  Governments,  when  they  accepted  the 

it  makes  no  material  difference  to  the  argument  wlietlier  the  text 
runs  "revendications  et  reclamations"  or  "renonciation  et  recla- 
mation"; for  I  regard  either  form  of  words  as  m<rely  a  protective 
phrase.  But  the  plausibility  of  M.  Klotz's  position  is  decidedly 
weakened  (if  so  weak  a  case  is  capable  of  further  weakening)  if 
it  is  the  latter  phrase  which  is  authentic.  The  Kditor  of  the 
Institute  of  International  Affairs'  History  of  the  Pencf  Confer- 
ence of  Pans,  who  was  the  first  to  discover  and  publish  the 
discrepancy  in  question  (vol.  v.  pp.  ;}70-372),  take.s  tlie  view  that 
the  question  of  wliich  text  is  used  makes  a  material  difference  to 
the  value  of  M.  Klotz's  argument. 


154  A  EEVISION  OF   THE   TREATY 

President's  formulas,  embodied  a  reservation,  on 
the  point  as  to  what  "restoration"  covered,  in 
the  following  sentence:  "By  i^  {i.e.,  restoration  of 
invaded  territorj^  they  understand  that  compen- 
sation will  be  made  by  Germany  for  all  damage 
done  to  the  civilian  population  of  the  Allies  and 
to  their  property  by  the  aggression  of  Germany 
by  land,  by  sea,  and  from  the  air." 

The  natural  meaning  and  object  of  these  words, 
which,  the  reader  must  remember,  are  introduced 
as  an  interpretation  of  the  phrase  "restoration 
of  invaded  territory,"  is  to  assimilate  submarine 
and  cruiser  aggression  by  sea  and  aeroplane  and 
airship  aggression  by  air  to  military  aggression 
by  land,  which,  in  all  the  circumstances,  was  a  rea- 
sonable extension  of  the  phrase,  provided  it  was 
duly  notified  beforehand.  The  Allies  rightly  ap- 
prehended that,  if  they  accepted  the  phrase  as  it 
stood,  "restoration  of  invaded  territory"  might 
be  limited  to  damage  resulting  from  military  ag- 
gression by  land. 

This  interpretation  of  the  reservation  of  the 
Allied  Governments,  namely  that  it  assimilated 
offensive  action  by  sea  or  air  to  offensive  action 
by  land,  but  that  "restoration  of  invaded  terri- 
tory" could  not  possibly  include  pensions  and 
separation  allowances,  was  adopted  b}^  the  Amer- 
ican Delegation  at  Paris.  They  construed  the 
German  liability  to  be  in  respect  of  the  "direct 


LEGALITY   OF   THE  CLAIM   FOR  PENSIONS      155 

physical  damage  to  property  of  non-military  char- 
acter and  direct  physical  injury  to  civilians"' 
caused  by  such  aggression;  the  only  further  lia- 
bility which  they  admitted  being  under  a  differ- 
ent part  of  the  President's  pronouncements, 
namely,  those  relating  to  breaches  of  International 
law,  such  as  the  breach  of  the  Treaty  of  Neutral- 
ity in  favor  of  Belgium,  and  the  illegal  treatment 
of  prisoners  of  war. 

I  doubt  if  any  one  would  ever  have  challenged 
this  interpretation  if  the  British  Prime  Minister 
had  not  won  a  General  Election  by  promises  to 
extract  from  Germany  more  than  this  interpreta- 
tion could  justify,-  and  if  the  French  Government 
also  had  not  raised  unjustifiable  expectations. 
These  promises  were  made  recklessly.  But  it  w^as 
not  easy  for  their  authors  to  admit,  so  soon  after 
they  had  been  given,  that  they  were  contrary  to 
our  engagements. 

The  discussion  opened  with  the  delegations, 
other  than  the  American,  claiming  that  we  had  not 
committed  ourselves  to  anything  which  precluded 
our  demanding  from  Germany  all  the  loss  and 
damage,  direct  and  indirect,  which  had  resulted 

'  BariK-li,  op.  cit.,  p  .19. 

'  Art  Mr.  Barueli  puts  it  {op.  cit.,  p.  4)  :  "At  an  election  held 
after  the  Armistice  and  agreement  as  to  the  basic  terms  of  peace, 
the  Englii^h  people,  by  an  ovcrwhclrainf?  majority,  returned  to 
power  their  Prime  Miiiirtter  on  the  hasis  of  an  increase  in  the 
severity  of  these  terms  of  the  peace,  especially  those  of  repars^- 
tion."     (The  italics  arc  mine.) 


156  A  REVISION   OP   THE   TREATY 

from  the  war.  "One  of  the  Allies,"  says  Mr. 
Baruch,  "went  even  further,  and  made  claim  for 
loss  and  damage  resulting  from  the  fact  that  the 
Armistice  was  concluded  so  unexpectedly  that  the 
termination  of  hostilities  involved  it  in  financial 
losses." 

Various  arguments  were  employed  in  the  early 
stages,  the  British  delegates  to  the  Reparation 
Committee  of  the  Peace  Conference,  namely,  Mr. 
Hughes,  Lord  Sumner  and  Lord  Cunliffe,  sup- 
porting the  demand  for  complete  war  costs  and 
not  merely  reparation  for  damage.  They  urged 
(1)  that  one  of  the  principles  enunciated  by  Presi- 
dent Wilson  was  that  each  item  of  the  Treaty 
should  be  just,  and  that  it  was  in  accordance  with 
the  general  principles  of  justice  to  throw  on  Ger- 
many the  whole  costs  of  the  war;  and  (2)  that 
Great  Britain's  war  costs  had  resulted  from  Ger- 
many's breach  of  the  Treaty  of  Neutrality  of  Bel- 
gium, and  that  therefore  Great  Britain  (but  not 
necessarily,  on  this  argument,  all  the  other  Al- 
lies) was  entitled  to  complete  repayment  in  ac- 
cordance with  the  general  principles  of  Interna- 
tional law.  These  general  arguments  were,  I 
think,  overwhelmed  by  the  speeches  made  on  be- 
half of  the  American  delegates  by  Mr.  John  Fos- 
ter Dulles.  The  following  are  extracts  from  what 
he  said:  "If  it  is  in  accordance  with  our  senti- 
ment that  the  principles  of  reparation  be  severe, 


LEGALITY  OF  THE  CLAIM  FOR  PENSIONS      157 

and  in  accord  with  our  material  interest  that  these 
principles  be  all  inclusive,  why,  in  defiance  of  these 
motives,  have  we  proposed  reparation  in  certain 
limited  ways  only?  It  is  because,  gentlemen,  we 
do  not  regard  ourselves  as  free.  We  are  not 
here  to  consider  as  a  novel  proposal  what  repa- 
ration the  enemy  should  in  justice  pay;  we  have 
not  before  us  a  blank  page  upon  which  we  are  free 
to  write  what  we  will.  We  have  before  us  a  page, 
it  is  true;  but  one  which  is  already  filled  with 
writing,  and  at  the  bottom  are  the  signatures  of 
Mr.  Wilson,  of  Mr.  Orlando,  of  M.  Clemenceau, 
and  of  Mr.  Lloyd  George.  You  are  all  aware,  I 
am  sure,  of  the  writing  to  which  I  refer :  it  is  the 
agreed  basis  of  peace  with  Germany."  Mr. 
Dulles  then  recapitulated  the  relevant  passages 
and  continued:  ''Can  there  be  any  question  that 
this  agreement  does  constitute  a  limitation  1  It 
is  perfectly  obvious  that  it  was  recognized  at  the 
time  of  the  negotiations  in  October  and  Novem- 
ber 1918  that  the  reparation  then  specified  for 
would  limit  the  Associated  Governments  as  to  the 
reparation  which  they  could  demand  of  the  enemy 
as  a  condition  of  peace.  The  whole  purpose  of 
Germany  was  to  ascertain  the  maximum  which 
would  be  demanded  of  her  in  the  terms  of  peace, 
and  the  action  of  the  Allies  in  especially  stipulat- 
ing^ at  that  time,  for  an  enlargement  of  the  orig- 
inal proposal  respecting  reparation  is  explicable 


158  A  REVISION"  OF   THE  TREATY 

only  on  the  theory  that  it  was  understood  that 
once  an  agreement  was  concluded  they  would  no 
longer  be  free  to  specify  the  reparation  which 
Germany  must  make.  We  have  thus  agreed  that 
we  would  give  Germany  peace  if  she  would  do 
certain  specified  things.  Is  it  now  open  to  us  to 
say,  'Yes,  but  before  you  get  peace  you  must  do 
other  and  further  things'?  We  have  said  to  Ger- 
many, 'You  may  have  peace  if  among  other  things 
you  perform  certain  acts  of  reparation  which  will 
cost  you,  say,  ten  million  dollars.'  Are  we  not 
now  clearly  precluded  from  saying, '  You  can  have 
peace  provided  you  perform  other  acts  of  repara- 
tion which  will  bring  your  total  liability  to  many 
times  that  which  was  originally  stipulated'?  No; 
irrespective  of  the  justice  of  the  enemy  making 
the  latter  reparation,  it  is  now  too  late.  Our  bar- 
gain has  been  struck  for  better  or  for  worse;  it 
remains  only  to  give  it  a  fair  construction  and 
practical  application." 

It  is  a  shameful  memory  that  the  British  dele- 
gates never  withdrew  their  full  demands,  to  which 
they  were  still  adhering  when,  in  March  1921,  the 
question  was  taken  out  of  their  hands  by  the  Su- 
preme Council.  The  American  Delegation  cabled 
to  the  President,  who  was  then  at  sea,  for  support 
in  maintaining  their  position,  to  which  he  replied 
that  the  American  Delegation  should  dissent,  and 
if  necessary  dissent  publicly,  from  a  procedure 


LEGALITY  OF  THE  CLAIM   FOR  PENSIONS      159 

which  *'is  clearly  inconsistent  with  what  we  de- 
liberately led  the  enemy  to  expect  and  cannot  now 
honorably  alter  simply  because  we  have  the 
power. ' '  ^ 

After  this  the  discussions  entered  on  a  new 
phase.  The  British  and  French  Prime  Ministers 
abandoned  the  contentions  of  their  delegates,  ad- 
mitted the  binding  force  of  the  words  contained 
in  their  Note  of  November  5,  1918,  and  settled 
down  to  extract  some  meaning  from  these  words 
which  would  compose  their  differences  and  satisfy 
their  constituents.  What  constituted  "damage 
done  to  the  civilian  population"?  Could  not  this 
be  made  to  cover  military  pensions  and  the  sepa- 
ration allow^ances  which  had  been  made  to  the 
civilian  dependents  of  soldiers?  If  so,  the  bill 
against  Germany  could  be  raised  to  a  high  enough 
figure  to  satisfy  nearly  every  one.  It  was  pointed 
out,  however,  as  Mr.  Baruch  records,  "that  finan- 
cial loss  resulting  from  the  absence  of  a  wage- 
earner  did  not  cause  any  more  'damage  to  the 
civilian  population'  than  did  an  equal  financial 
loss  involved  in  the  payment  of  taxes  to  provide 
military  equipment  and  like  war  costs."  In  fact, 
a  separation  allowance  or  a  pension  was  simply 
one  of  many  general  charges  on  the  Exchequer 
arising  out  of  the  costs  of  the  war.  If  such 
charges  were  to  be  admitted  as  civilian  damage, 

'  Baruch,  op.  cit.,  p.  25. 


160  A  REVISION   OF   THE  TREATY 

it  was  a  very  short  step  back  to  the  claim  for  the 
entire  costs  of  the  war,  on  the  ground  that  these 
costs  must  fall  on  the  taxpayer  who,  generally 
speaking,  was  a  civilian.  The  sophistry  of  the 
argument  became  exposed  by  pushing  it  to  its  log- 
ical conclusion.  Nor  was  it  clear  how  pensions 
and  allowances  could  be  covered  by  words  which 
were  themselves  an  interpretation  of  the  phrase, 
"restoration  of  invaded  territory."  And  the 
President's  conscience,  though  very  desirous  by 
now  to  be  converted  (for  he  had  on  hand  other 
controversies  with  his  colleagues  which  interested 
him  more  than  this  one)  remained  unconvinced. 

The  American  delegates  have  recorded  that  the 
final  argument  which  overbore  the  last  scruples 
of  the  President  was  contained  in  a  Memorandum 
prepared  by  General  Smuts  ^  on  March  31,  1919. 

*  This  Memorandum,  which  has  been  published  in  extenso  by 
Mr.  Baruch  {op.  cit.,  p.  29  seq.),  belonged  to  the  category  of  most 
secret  documents.  It  has  been  given  to  the  world  by  itself  without 
tho  accompanying  circumstances  which,  without  justifying  its 
arguments  (on  which  indeed  no  further  light  could  be  thrown 
beyond  what  we  already  have  in  the  narrative  of  Mr.  Baruch), 
might  yet  throw  light  on  individual  motives.  I  agree  with  the 
comment  made  by  The  Economist  (Oct.  22,  1921)  in  reviewing 
Vol.  IV.  of  the  History  of  the  Peace  Conference  of  Paris  (pub- 
lished under  the  auspices  of  the  Institute  of  International  Af- 
fairs), which  has  reprinted  this  Memorandum,  that  "a  very  seri- 
ous injustice  will  be  done  to  the  reputation  of  General  Smuts  if 
this  document  continues  to  be  reproduced  and  circulated  without 
any  explanation  of  the  circumstances  in  which  it  was  prepared." 
Nevertheless  it  is  well  that  the  world  should  liave  this  document, 
and  it  must  take  its  place  in  a  story  which  is  more  important  to 
the  world  than  the  motives  and  reputations  of  individual  actors 
in  it. 


LEGALITY   OF   THE   CLAIM   FOR  PENSIONS      161 

Briefly,  Ibis  argument  was,  that  a  soldier  becomes 
a  civilian  again  after  his  discharge,  and  that, 
therefore,  a  wound,  the  effects  of  which  persist 
after  he  has  left  the  Army,  is  damage  done  to  a 
civilian/  This  is  the  argument  by  which  "dam- 
age done  to  the  civilian  population"  came  to  in- 
clude damage  done  to  soldiers.  This  is  the 
argument  on  which,  in  the  end,  our  case  was  based ! 
For  at  this  straw  the  President's  conscience 
clutched,  and  the  matter  was  settled. 

It  had  been  settled  in  the  privacy  of  the  Four. 
I  will  give  the  final  scene  in  the  words  of  Mr. 
Lamont,  one  of  the  American  delegates :  ^ 

*'I  well  remember  the  day  upon  which 
President  Wilson  determined  to  support  the 
inclusion  of  pensions  in  the  Reparation  Bill. 
Some  of  us  were  gathered  in  his  library  in 

'The  following  is  the  salient  passage  of  the  MemoraTidum : 
"After  the  soldier's  discharge  as  unfit  he  rejoins  the  civilian 
population,  and  as  for  the  future  he  cannot  (in  whole  or  in  part) 
earn  his  own  livelihood,  he  is  suffering  damage  as  a  member  of 
the  civilian  population,  for  which  the  German  Government  are 
again  liable  to  make  compensation.  In  other  words,  the  pension 
for  disablement  which  he  draws  from  the  French  Government  la 
really  a  liability  of  the  German  Government,  which  they  must 
under  the  above  reservation  make  good  to  the  French  Govern- 
ment. It  could  not  be  argued  that  as  he  was  disabled  while  a 
soldier  he  does  not  suffer  damage  as  a  civilian  after  his  discharge 
if  he  is  unfit  to  do  his  ordinary  work.  He  does  literally  suffer  as 
civilian  after  his  discharge,  and  his  pension  is  intended  to  make 
good  this  damage,  and  is  therefore  a  liability  of  the  German 
Government." 

*  What  Really  Happened  at  Paris,  p.  272. 


162  A  EEVISION"   OF   THE  TREATY 

the  Place  des  Etats  Unis,  having  been  sum- 
moned by  him  to  discuss  this  particular  ques- 
tion of  pensions.  We  explained  to  him  that 
we  couldn't  find  a  single  laAvyer  in  the  Amer- 
ican Delegation  that  would  give  an  opinion  in 
favor  of  including  pensions.  All  the  logic 
was  against  it.  'Logic!  logic!'  exclaimed  the 
President,  'I  don't  care  a  damn  for  logic.  I 
am  going  to  include  pensions!'  "^ 

Well!  perhaps  I  was  too  near  these  things  at 
the  time  and  have  become  touched  in  the  emo- 
tions, but  I  cannot  "more  or  less  shrug  my  shoul- 
ders." Whether  or  not  that  is  the  appropriate 
gesture,  I  have  here  set  forth,  for  the  inspection 
of  Englishmen  and  our  Allies,  the  moral  basis  on 
which  two-thirds  of  our  claims  against  Germany 
rest. 

'  Mr.  Lamont  adds  that  "it  was  not  a  contempt  of  logic,  but 
simply  an  impatience  of  technicality;  a  determination  to  brush 
aside  verbiage  and  get  at  the  root  of  things.  There  was  not  one 
of  us  in  the  room  whose  heart  did  not  beat  with  a  like  feeling." 
These  words  not  merely  reflect  a  little  naively  the  modern  oppor- 
tunist's impatience  of  legality  and  respect  for  the  ^ait  O'Ccompli, 
but  also  recall  the  atmosphere  of  exhaustion  and  the  longing  of 
everyone  to  bo  finished,  somehow,  with  this  dreadful  controversy, 
which  for  months  had  outraged  at  the  same  time  the  intellects 
and  the  consciences  of  most  of  the  participators.  Yet,  even  so, 
to  their  lasting  credit,  the  American  Delegation  had  stood  firm 
for  the  law,  and  it  was  the  President,  and  he  alone,  who  capitu- 
lated to  the  lying  exigencies  of  politics. 


CHxVPTER  VI 

Reparation,  Inter-Ally  Debt,  and 
"International  Trade 

It  is  fashionable  at  the  present  time  to  urge  a 
reduction  of  the  Allies'  claims  on  Germany  and 
of  America's  claims  on  the  Allies,  on  the  ground 
that,  as  such  payments  can  only  be  made  in  goods, 
insistence  on  these  claims  will  be  positively  in- 
jurious to  the  claimants. 

That  it  is  in  the  self-interest  of  the  Allies  and 
of  America  to  abate  their  respective  demands,  I 
hold  to  be  true.  But  it  is  better  not  to  use  bad 
arguments,  and  the  suggestion  that  it  is  neces- 
sarily injurious  to  receive  goods  for  nothing  is 
not  plausible  or  correct.  I  seek  in  this  chapter 
to  disentangle  the  true  from  the  false  in  the  now 
])opular  belief  that  there  is  something  harmful 
in  compelling  Germany  (or  Europe)  to  "fling 
goods  at  us." 

The  argument  is  a  little  intricate  and  the 
reader  must  be  patient. 

1.  It  does  not  make  very  much  difference 
whether  the  debtor  country  pays  by  sending  goods 
direct  to  tlie  creditor  or  by  selling  them  elsewhere 

163 


164  A  REVISION  OF  THE  TREATY 

and  remitting  cash.  In  either  case  the  goods  come 
on  to  the  world  market  and  are  sold  competitively 
or  cooperatively  in  relation  to  the  industries  of 
the  creditor,  as  the  case  may  be,  this  distinction 
depending  on  the  nature  of  the  goods  rather  than 
on  the  market  in  which  they  are  sold. 

2.  It  is  not  much  use  to  earmark  non-competi- 
tive goods  against  the  payment  of  the  debt,  so 
long  as  competitive  goods  are  being  sold  by  the 
debtor  country  in  some  other  connection,  e.g.,  to 
j)ay  for  its  own  imports.  This  is  simply  to  bury 
one's  head  in  the  sand.  For  example,  out  of  the 
aggregate  of  goods  which  Germany  would  natu- 
rally export  in  the  event  of  her  exports  being 
forcibly  stimulated,  it  might  be  possible  to  pick 
out  a  selection  of  non-competitive  goods;  but  it 
would  not  affect  the  situation  in  the  slightest  de- 
gree to  pretend  that  it  was  these  particular  goods, 
and  not  the  others,  which  were  paying  the  debt. 
It  is  therefore  useless  to  prescribe  that  Germany 
shall  pay  in  certain  specified  commodities  if  these 
are  commodities  which  she  would  export  in  any 
case,  and  useless,  equally,  to  forbid  her  to  pay  in 
certain  specified  commodities,  if  that  merely 
means  that  she  will  export  these  commodities  to 
some  other  market  to  pay  for  her  imports  gen- 
erally. No  expedient  on  our  part  for  making  Ger- 
many pay  us,  or  on  America's  part  for  making  us 
pay  her,  in  the  shape  of  particular  commodities 


REPARATION,   INTER-ALLY  DEBT,   ETC.      165 

affects  the  position,  except  in  so  far  as  it  modifies 
the  form  of  the  paying  country's  exports  as  a 
ivhole. 

3.  On  the  other  hand,  it  does  us  no  harm  to  re- 
ceive for  nothing  the  proceeds  of  goods,  even  when 
they  are  sold  competitively,  if  these  goods  would 
be  sold  on  the  world's  market  in  any  case. 

4.  If  the  result  of  pressing  the  debtor  country 
to  pay  is  to  cause  it  to  otfer  competitive  goods 
at  a  lower  jDrice  than  it  would  otherwise,  the  par- 
ticular industries  in  the  creditor  country  which 
produce  these  goods  are  bound  to  suffer,  even 
though  there  are  balancing  advantages  for  the 
creditor  country  as  a  whole. 

5.  In  so  far  as  the  payments  made  by  the  debtor 
country  accrue,  not  to  the  country  with  wliich  the 
debtor's  goods  are  competing,  but  to  a  third  party, 
clearly  there  are  no  balancing  advantages  to  offset 
the  direct  disadvantages  under  4. 

6.  The  answer  to  the  question,  whether  the  bal- 
ancing advantages  to  the  creditor  country  as  a 
whole  outweigh  the  injury  to  particular  industries 
within  that  country,  depends  on  the  length  of  the 
period  over  which  the  creditor  country  can  rea- 
sonably expect  to  go  on  receiving  the  payments. 
At  first  the  injury  to  the  industries  which  suffer 
from  the  competition  and  to  those  employed  in 
them  is  likely  to  outweigh  the  benefit  of  the  pay- 
ments received.    But,  as  in  the  course  of  time  the 


166  A   REVISION   OF   THE   TREATY 

capital  and  labor  are  absorbed  in  other  directions, 
a  balance  of  advantage  may  accrue. 

The  application  of  these  general  principles  to 
the  particular  case  of  ourselves  and  Germany  is 
easy.  Germany's  exports  are  so  preponderantly 
competitive  with  ours,  that,  if  her  exports  are 
forcibly  stimulated,  it  is  certain  that  she  will  have 
to  sell  goods  against  us.  This  is  not  altered  by 
the  fact  that  it  is  possible  to  pick  out  a  few  ex- 
ports or  potential  exports,  such  as  potash  or 
sugar,  which  are  not  competitive.  If  Germany  is 
to  have  a  large  surplus  of  exports  over  imports, 
she  must  increase  her  competitive  sales.  In  the 
Economic  Consequences  of  the  Peace  (pp.  175- 
185)  I  demonstrated  this  at  some  length  on  the 
basis  of  pre-war  statistics.  I  showed  not  onlj^ 
that  the  goods  she  must  sell,  but  the  markets  she 
must  sell  them  in,  were  largely  competitive  with 
our  own.  The  statistics  of  post-war  trade  show 
that  the  former  argument  still  holds  good.  The 
following  table  shows  the  proportions  in  which 
her  export  trade  was  divided  between  the  prin- 
cipal articles  of  export,  (1)  in  1913,  (2)  in  the 
first  nine  months  of  1920  (the  latest  period  for 
which  I  have  figures  in  this  precise  form),  and 
(3)  in  the  four  months  June  to  September  1921, 
these  last  figures  representing,  I  think,  a  not  ex- 
actly comparable  classification,  and  being  provi- 
sional only: 


REPARATION,  INTER-ALLY  DEBT,  ETC.   167 


German  Exports. 


Iron  and  stw!  goods 

Macliiiiery   (incJuding  motor  cars) 

Cliemkala  and  dies 

Fuil    

Paper  goods    

Kleclrical  goods  

Silk  poods   

Cotlon  goods  

Woolen  goods  

Glass    

Leather  goods  

Loppor  goods    


reiceutage  of  Total   Exports. 


1913. 


13.2 
7.5 
4 
7 

2.5 
2 
2 

6.5 
6 

.5 
3 
1.5 


inijo 

Ul  .in. -Sept.) 


20 
12 
13 

6.5 

4 

3.5 

3 

3 

2.5 
2 

1.5 


1921 
(June-Sept.) 


22 
17 

9.5 

? 

3.5 


V 


}« 


It  is  clear,  therefore,  that,  though  raw  mate- 
rials other  than  coal,  such  as  potash,  sugar,  and 
timber  may  yield  a  trifle,  Germany  can  only  com- 
pass an  export  trade  of  great  value  by  exporting 
iron  and  steel  goods,  chemicals,  dyes,  textiles,  and 
coal,  for  these  are  the  only  export  articles  of 
which  she  can  produce  great  quantities.  It  is  also 
clear  that  there  have  been  no  very  marked 
changes  in  the  proportionate  importance  of  the 
different  export  trades  since  the  war,  except  that 
the  exchange  position  has  somewhat  stimulated, 
relatively  to  the  others,  those  export  lines,  such 
as  iron  goods,  machinery,  chemicals,  dyes,  and 
glass,  which  do  not  involve  much  importation  of 
raw  materials. 

To  compel  Germany  to  pay  a  large  indemnity 


168  A  REVISION   OF   THP]   TEEATY 

is  therefore  the  same  thing  as  to  compel  her  to 
expand  some  or  all  of  the  above-mentioned  ex- 
ports to  a  greater  extent  than  she  would  do  other- 
■  wise.  The  only  way  in  which  she  can  effect  this 
expansion  is  by  oifering  the  goods  at  a  lower  price 
than  that  at  which  other  countries  care  to  offer 
them;  putting  herself  in  a  position  to  offer  them 
cheap,  partly  by  the  German  working  classes  low- 
ering their  standard  of  life  without  reducing 
their  efficiency  in  the  same  degree,  and  partly  by 
German  export  industries  being  subsidized,  di- 
rectly or  indirectly,  at  the  expense  of  the  rest  of 
the  community. 

These  facts,  formerly  overlooked,  are  now,  per- 
haps, exaggerated  by  popular  opinion.  For  Prin- 
ciple (3),  enunciated  above,  requires  attention. 
Our  industries  will  be  subjected  to  strong  compe- 
tition from  Germany,  just  as  they  were  before  the 
war,  whether  we  exact  Keparation  or  not;  and 
we  must  not  ascribe  to  the  Reparation  policy  in- 
conveniences which  would  exist  in  any  case.  The 
remedy  lies  not  in  the  now  popular  nostrums  for 
prescribing  the  form  in  which  Germany  shall  pay, 
but  in  reducing  the  aggregate  amount  to  a  reason- 
able figure.  For  by  prescribing  the  manner  in 
which  she  shall  pay  us  we  do  not  control  the  form 
of  her  export  trade  as  a  whole;  and  by  absorbing 
for  reparation  purposes  the  whole  of  a  particular 
type  of  export,  we  compel  her  to  expand  her  other 


REPAEATION,   INTER-ALLY   DEBT,   ETC.      169 

exports  to  pay  for  her  imports  and  other  inter- 
national obligations.  On  the  other  hand,  we  can 
secure  from  her  moderate  payments,  on  the  sort 
of  scale,  for  example,  on  which  she  might  have 
been  building  up  new  foreign  investments,  with- 
out stimulating  her  exports  as  a  whole  to  a  greater 
activity  than  they  would  enjoy  otherwise.  This 
is  the  correct  course  for  Great  Britain  from  the 
standpoint  of  her  own  self-interest  only. 

The  practical  application  of  Principles  (5)  and 
(6)  is  also  clear.  So  far  as  (5)  is  concerned. 
Great  Britain  is  to  receive  not  the  whole  of  the 
indemnity,  but  about  a  fifth  of  it;  whilst  (6)  pro- 
vides the  argument  which  to  me  has  always  ap- 
jDeared  decisive.  The  permanence  of  reparation 
payments  on  a  large  scale  for  a  long  period  of 
years  is,  to  say  the  least,  not  to  be  reckoned  on. 
Who  believes  that  the  Allies  will,  over  a  period 
of  one  or  two  generations,  exert  adequate  force 
over  the  German  Government,  or  that  the  Ger- 
man Government  can  exert  adequate  authority 
over  its  subjects,  to  extract  continuing  fruits  on 
a  vast  scale  from  forced  labor?  No  one  believes 
it  in  his  heart;  no  one  at  all.  There  is  not  the 
faintest  possibility  of  our  persisting  with  this 
affair  to  the  end.  But  if  this  is  so,  then,  most 
certainly,  it  will  not  be  worth  our  while  to  dis- 
order our  export  trades  and  disturb  the  equi- 


170  A  KEVISION   OF  THE   TREATY 

librium  of  our  industry  for  two  or  three  years; 
much  less  to  endanger  the  peace  of  Europe. 

The  same  principles  apply  with  one  modifica- 
tion to  the  United  States  and  to  the  exaction  by 
her  of  the  debts  which  the  Allied  Governments 
owe.  The  industries  of  the  United  States  would 
suffer,  not  so  much  from  the  competition  of  cheap 
goods  from  the  Allies  in  their  endeavors  to  pay 
their  debts,  as  from  the  inability  of  the  Allies  to 
purchase  from  America  their  usual  proportion  of 
her  exports.  The  Allies  would  have  to  find  the 
money  to  pay  America,  not  so  much  by  selling 
more  as  by  buying  less.  The  farmers  of  the 
United  States  would  suffer  more  than  the  manu- 
facturers; if  only  because  increased  imports  can 
be  kept  out  by  a  tariff,  whilst  there  is  no  such 
easy  way  of  stimulating  diminished  exports.  It 
is,  however,  a  curious  fact  that  whilst  Wall  Street 
and  the  manufacturing  East  are  prepared  to  con- 
sider a  modification  of  the  debts,  the  Middle  West 
and  South  is  reported  (I  write  ignorantly)  to  be 
dead  against  it.  For  two  years  Germany  was 
not  required  to  pay  cash  to  the  Allies,  and  during 
that  period  the  manufacturers  of  Great  Britain 
were  quite  blind  to  what  the  consequences  would 
be  to  themselves  when  the  payments  actually 
began.  The  Allies  have  not  yet  been  required 
to  begin  to  pay  cash  to  the  United  States,  and  the 
farmers  of  the  latter  are  still  as  blind  as  were 


REPARATION,    JXTER-ALLY   DEBT,   ETC.       171 

the  British  manufacturers  to  the  injuries  they 
will  suffer  il'  the  Allies  ever  try  seriously  to  pay 
in  full.  I  recommend  Senators  and  Congressmen 
from  the  agricultural  districts  of  the  United 
States,  lest  they  soon  suffer  the  same  moral  and 
intellectual  ignominy  as  our  own  high-Repara- 
tion men,  to  invest  at  once  in  a  little  caution  in 
their  opposition  to  the  efforts  of  Mr.  Harding's 
Administration  to  secure  for  itself  a  free  hand 
to  act  wisely  in  this  matter  (and  even  perhaps 
generously)  in  accordance  with  the  progress  of 
opinion  and  of  events. 

The  decisive  argument,  however,  for  the  United 
States,  as  for  Great  Britain,  is  not  the  damage 
to  particular  interests  (which  would  diminish  with 
time),  but  the  unlikelihood  of  permanence  in  the 
exaction  of  the  debts,  even  if  they  were  paid  for 
a  short  period.  I  say  this,  not  only  because  I 
doubt  the  ability  of  the  European  Allies  to  pay, 
but  because  of  the  great  difficulty  of  the  problem 
which  the  United  States  has  before  her  in  any  case 
in  balancing  her  commercial  account  with  the  Old 
World. 

x\merican  economists  have  examined  somewhat 
carefully  the  statistical  measure  of  the  change 
from  the  pre-war  position.  According  to  their 
estimates,  America  is  now  owed  more  interest  on 
foreign  investments  than  is  due  from  her,  quite 
apart  from  the  interest  on  the  debts  of  the  Allied 


172  A  EEVISION  OF   THE  TREATY 

Governments;  and  her  mercantile  marine  now 
earns  from  foreigners  more  than  she  owes  them 
for  similar  services.  Her  excess  of  exports  of 
commodities  over  imports  approaches  $3000  mil- 
lions a  year ;  ^  whilst,  on  the  other  side  of  the  bal- 
ance, payments,  mainly  to  Europe,  in  respect  of 
tourists  and  of  immigrant  remittances  are  esti- 
mated at  not  above  $1000  millions  a  year.  Thus, 
in  order  to  balance  the  account  as  it  now  stands, 
the  United  States  must  lend  to  the  rest  of  the 
world,  in  one  shape  or  another,  not  less  than 
$2000  millions  a  year,  to  which  interest  and  sink- 
ing fund  on  the  European  Governmental  War 
Debts  would,  if  they  were  paid,  add  about  $600 
millions. 

Recently,  therefore,  the  United  States  must 
have  been  lending  to  the  rest  of  the  world,  mainly 
Europe,  something  like  $2000  millions  a  year. 
Fortunately  for  Europe,  a  fair  proportion  of  this 
was  by  way  of  speculative  purchases  of  depreci- 
ated paper  currencies.  From  1919  to  1921  the 
losses  of  American  speculators  fed  Europe;  but 
this  source  of  income  can  scarcely  be  reckoned 
on  permanently.  For  a  time  the  policy  of  loans 
can  meet  the  situation;  but,  as  the  interest  on 


*  In  the  year  of  boom  to  June  1920,  on  a  total  trade  of  $13,350 
millions,  the  excess  of  exports  over  imports  was  $2870  millions. 
In  tlio  year,  partly  one  of  depression,  to  June  1921,  on  a  total 
trade  of  $10,150  millions,  the  excess  of  exports  was  $2860  millions. 


EEPARATION,    INTER-ALLY   DEBT,    ETC.       173 

past  loans  mounts  up,  it  must  in  the  long  run 
aggravate  it. 

Mercantile  nations  have  always  employed  large 
funds  in  overseas  trade.  But  the  practice  of  for- 
eign investment,  as  we  know  it  now,  is  a  very 
modern  contrivance,  a  very  unstable  one,  and  only 
suited  to  peculiar  circumstances.  An  old  coun- 
try can  in  this  way  develop  a  new  one  at  a  time 
when  the  latter  could  not  possibly  do  so  with  its 
own  resources  alone;  the  arrangement  may  be 
mutually  advantageous,  and  out  of  abundant 
profits  the  lender  may  hope  to  be  repaid.  But 
the  position  cannot  be  reversed.  If  European 
bonds  are  issued  in  America  on  the  analogy  of 
the  American  bonds  issued  in  Europe  during  the 
nineteenth  century,  the  analogy  will  bo  a  false 
one;  because,  taken  in  the  aggregate,  there  is  no 
natural  increase,  no  real  sinking  fund,  out  of 
which  they  can  be  repaid.  The  interest  will  be 
furnished  out  of  new  loans,  so  long  as  these  are 
obtainable,  and  the  financial  structure  will  mount 
always  higher,  until  it  is  not  worth  while  to  main- 
tain any  longer  the  illusion  that  it  has  founda- 
tions. The  unwillingness  of  American  investors 
to  buy  European  bonds  is  based  on  common  sense. 

At  the  end  of  1919  I  advocated  (in  The  Eco- 
nomic Consequences  of  the  Peace)  a  reconstruc- 
tion loan  from  America  to  Europe,  conditioned, 
however,  on  Europe's  putting  her  own  house  in 


174  A  REVISION   OF   THE  TREATY 

order.  In  the  past  two  years  America,  in  spite 
of  European  complaints  to  the  contrary,  has,  in 
fact,  made  very  large  loans,  much  larger  than  the 
sum  I  contemplated,  though  not  mainly  in  the 
form  of  regular,  dollar-bond  issues.  No  particu- 
lar conditions  were  attached  to  these  loans,  and 
much  of  the  money  has  been  lost.  Though  wasted 
in  part,  they  have  helped  Europe  through  the  crit- 
ical days  of  the  post-Armistice  period.  But  a 
continuance  of  them  cannot  provide  a  solution 
for  the  existing  disequilibrium  in  the  balance  of 
indebtedness. 

In  part  the  adjustment  may  be  effected  by  the 
United  States  taking  the  place  hitherto  held  by 
England,  France,  and  (on  a  small  scale)  Germany 
in  providing  capital  for  those  new  parts  of  the 
world  less  developed  than  herself — the  British 
Dominions  and  South  America.  The  Russian  Em- 
pire, too,  in  Europe  and  Asia,  may  be  regarded 
as  virgin  soil,  which  will  at  a  later  date  provide 
a  suitable  outlet  for  foreign  capital.  The  Amer- 
ican investor  will  lend  more  wisely  to  these  coun- 
tries, on  the  lines  on  which  British  and  French  in- 
vestors used  to  lend  to  them,  than  direct  to  the 
old  countries  of  Europe.  But  it  is  not  likely  that 
the  whole  gap  can  be  bridged  thus.  Ultimately, 
and  probably  soon,  there  must  be  a  readjustment 
of  the  balance  of  exports  and  imports.  America 
must  buy  more  and  sell  less.    This  is  the  only  al- 


REPARATIOX,   IXTER-ALLY   DEBT,  ETC.      175 

ternative  to  her  making  to  Europe  an  annual  pres- 
ent. Either  American  prices  must  rise  faster 
than  European  (which  will  be  the  case  if  the  Fed- 
eral Reserve  Board  allows  the  gold  influx  to  pro- 
duce its  natural  consequences),  or,  failing  this, 
the  same  result  must  be  brought  about  by  a  fur- 
ther depreciation  of  the  European  exchanges, 
until  Europe,  by  inability  to  buy,  has  reduced  her 
purchases  to  articles  of  necessity.  At  first  the 
American  exporter,  unable  to  scrap  all  at  once 
the  processes  of  production  for  export,  may  meet 
the  situation  by  lowering  his  prices;  but  when 
these  have  continued,  say  for  two  years,  below 
his  cost  of  production,  he  will  be  driven  inev- 
itably to  curtail  or  abandon  his  business. 

It  is  useless  for  the  United  States  to  suppose 
that  an  equilibrium  position  can  be  reached  on 
the  basis  of  her  exporting  at  least  as  much  as  at 
present,  and  at  the  same  time  restricting  her  im- 
ports by  a  tariff.  Just  as  the  Allies  demand  vast 
payments  from  Germany,  and  then  exercise  their 
ingenuity  to  prevent  her  paying  them,  so  the 
American  Administration  devises,  with  one  hand, 
schemes  for  financing  exports,  and,  with  the  other, 
tariffs  which  will  make  it  as  difficult  as  possible 
for  such  credits  to  be  repaid.  Great  nations  can 
often  act  with  a  degree  of  folly  which  we  should 
not  excuse  in  an  individual. 

By  the  shipment  to  the  United  States  of  all  the 


176  A  KEVISION  OF  THE  TREATY 

bullion  in  the  world,  and  the  erection  there  of  a 
sky-scraping  golden  calf,  a  short  postponement 
may  be  gained.  But  a  point  may  even  come  when 
the  United  States  will  refuse  gold,  yet  still  de- 
mand to  be  paid, — a  new  Midas  vainly  asking 
more  succulent  fare  than  the  barren  metal  of  her 
own  contract. 

In  any  case  the  readjustment  will  be  severe, 
and  injurious  to  important  interests.  If,  in  ad- 
dition, the  United  States  exacts  payment  of  the 
Allied  debts,  the  position  will  be  intolerable.  If 
she  persevered  to  the  bitter  end,  scrapped  her 
export  industries  and  diverted  to  other  uses  the 
capital  now  employed  in  them,  and  if  her  former 
European  associates  decided  to  meet  their  obliga- 
tions at  whatever  cost  to  themselves,  I  do  not 
deny  that  the  final  result  might  be  to  America's 
material  interest.  But  the  project  is  utterly  chi- 
merical. It  will  not  happen.  Nothing  is  more 
certain  than  that  America  will  not  pursue  such  a 
policy  to  its  conclusion;  she  will  abandon  it  as 
soon  as  she  experiences  its  first  consequences. 
Nor,  if  she  did,  would  the  Allies  pay  the  money. 
The  position  is  exactly  parallel  to  that  of  German 
Reparation.  America  will  not  carry  through  to 
a  conclusion  the  collection  of  Allied  debt,  any 
more  than  the  Allies  will  carry  through  the  col- 
lection of  their  present  Reparation  demands. 
Neither,    in    the    long    run,    is    serious    politics. 


REPARATION,   INTER-ALLY  DEBT,   ETC.       177 

Nearly  all  well-informed  persons  admit  this  in 
private  conversation.  But  we  live  in  a  curious 
age  when  utterances  in  the  press  are  deliberately- 
designed  to  be  in  conformity  with  the  worst-in- 
formed, instead  of  with  the  best-informed,  opin- 
ion, because  the  former  is  the  wider  spread;  so 
that  for  comparatively  long  periods  there  can  be 
discrepancies,  laughable  or  monstrous,  between 
the  written  and  the  spoken  word. 

If  this  is  so,  it  is  not  good  business  for  America 
to  embitter  her  relations  with  Europe,  and  to  dis- 
order her  export  industries  for  two  years,  in  pur- 
suance of  a  policy  which  she  is  certain  to  abandon 
before  it  has  profited  her. 

For  the  benefit  of  any  reader  who  enjoys  an 
abstract  statement,  I  summarize  tlie  argument 
thus.  The  equilibrium  of  international  trade  is 
based  on  a  complicated  balance  between  the  agri- 
culture and  the  industries  of  the  different  coun- 
tries of  the  world,  and  on  a  specialization  b)^  each 
in  the  employment  of  its  labor  and  its  capital.  If 
one  country  is  required  to  transfer  to  another 
without  payment  great  quantities  of  goods,  for 
which  this  equilibrium  does  not  allow,  the  bal- 
ance is  destroyed.  Since  capital  and  labor  are 
fixed  and  organized  in  certain  employments  and 
cannot  flow  freely  into  others,  the  disturbance  of 
the  balance  is  destructive  to  the  utility  of  the  cap- 
ital and  labor  thus  fixed.     The  organization,  on 


178  A  REVISION  OF  THE  TREATY 

which  the  wealth  of  the  modern  world  so  largely 
depends,  suffers  injury.  In  course  of  time  a  new 
organization  and  a  new  equilibrium  can  be  estab- 
lished. But  if  the  origin  of  the  disturbance  is  of 
temporary  duration,  the  losses  from  the  injury 
done  to  organization  may  outweigh  the  profit  of 
receiving  goods  without  paying  for  them.  More- 
over, since  the  losses  will  be  concentrated  on  the 
capital  and  labor  employed  in  particular  indus- 
tries, they  will  provoke  an  outcry  out  of  propor- 
tion to  the  injury  inflicted  on  the  community  as 
a  whole. 


CHAPTER  VII 

The  Revision  of  the  Treaty  and  the 
Settlement  of  Europe 

The  deeper  and  the  i'ouler  the  bogs  into  which 
Mr.  Lloyd  George  leads  us,  the  more  credit  is  his 
for  getting  us  out.  He  leads  us  in  to  satisfy  our 
desires;  he  leads  us  out  to  save  our  souls.  He 
hands  us  down  the  primrose  path  and  puts  out 
the  bonfire  just  in  time.  "Who,  ever  before,  en- 
joyed the  best  of  heaven  and  hell  as  we  do? 

In  England,  opinion  has  nearly  completed  its 
swing,  and  the  Prime  Minister  is  making  ready 
to  win  a  General  Election  on  Forbidding  Ger- 
many to  Pay,  Employment  for  Every  one,  and  a 
Happier  Europe  for  All.  Why  not,  indeed?  But 
this  Faustus  of  ours  shakes  too  quickly  his 
kaleidoscope  of  halos  and  hell-fire,  for  me  to  de- 
pict the  hues  as  they  melt  into  one  another.  I 
shall  do  better  to  construct  an  independent  solu- 
tion, which  is  possible  in  the  sense  that  nothing 
but  a  change  in  the  popular  will  is  necessary  to 
achieve  it,  hoping  to  influence  this  wdll  a  little, 
but  leaving  it  to  those,  whose  business  it  is,  to 
gage  the  moment  at  which  it  will  be  safe  to 
embroider  such  patterns  on  a  political  banner. 

179 


180  A  KEVISION  OF  THE  TREATY 

If  I  look  back  two  years  and  read  again  what  I 
wrote  then,  I  see  that  perils  which  were  ahead  are 
now  passed  safely.  The  patience  of  the  common 
people  of  Europe  and  the  stability  of  its  insti- 
tutions have  survived  the  worst  shocks  they  will 
receive.  Two  years  ago  the  Treaty,  which  out- 
raged Justice,  Mercy,  and  Wisdom,  represented 
the  momentary  will  of  the  victorious  countries. 
Would  the  victims  be  patient!  Or  would  they  be 
driven  by  despair  and  privation  to  shake  Society's 
foundations?  We  have  the  answer  now.  They 
have  been  patient.  Nothing  very  much  has  hap- 
pened, except  pain  and  injury  to  individuals.  The 
communities  of  Europe  are  settling  down  to  a  new 
equilibrium.  We  are  almost  ready  to  turn  our 
minds  from  the  avoidance  of  calamity  to  the  re- 
newal of  health. 

There  have  been  other  injfluences  besides  that 
patience  of  the  common  people  which  often  before 
has  helped  Europe  through  worse  evils.  The  ac- 
tions of  those  in  power  have  been  wiser  than  their 
words.  It  is  only  a  slight  exaggeration  to  say 
that  no  parts  of  the  Peace  Treaties  have  been  car- 
ried out,  except  those  relating  to  frontiers  and  to 
disarmament.  Many  of  the  misfortunes  which  I 
predicted  as  attendant  on  the  execution  of  the 
Reparation  Chapter  have  not  occurred,  because  no 
serious  attempt  has  been  made  to  execute  it.  And, 
whilst  no  one  can  predict  with  what  particular 


THE   SETTLEMENT   OF  EUROPE  181 

sauce  the  makers  of  the  Treaty  will  eat  their 
words,  there  can  no  longer  be  any  question  of  the 
actual  enforcement  of  this  Chapter.  And  there 
has  been  a  third  factor,  not  quite  in  accordance 
with  expectations,  paradoxical  at  first  sight,  but 
natural,  nevertheless,  and  concordant  with  past 
experience, — the  fact  that  it  is  in  times  of  grow- 
ing profits  and  not  in  times  of  growing  distress 
that  the  working  classes  stir  themselves  and 
threaten  their  masters.  When  times  are  bad  and 
poverty  presses  on  them  they  sink  back  again  into 
a  weary  acquiescence.  Great  Britain  and  all  Eu- 
rope have  learned  this  in  1921.  "Was  not  the 
French  Revolution  rather  due  perhaps  to  the 
growing  wealth  of  eighteenth-century  France — 
for  at  that  time  France  was  the  richest  country 
in  the  world — than  to  the  pressure  of  taxation  or 
the  exactions  of  the  old  regime?  It  is  the 
profiteer,  not  privation,  that  makes  man  shake  his 
chains. 

In  spite,  therefore,  of  trade  depression  and  dis- 
ordered exchanges,  Europe,  under  the  surface,  is 
much  stabler  and  much  healthier  than  two  years 
ago.  The  disturbance  of  minds  is  less.  The  or- 
ganization, destroyed  by  war,  has  been  partly  re- 
stored; transport,  except  in  Eastern  Europe,  is 
largely  repaired;  there  has  been  a  good  harvest, 
everywhere  but  in  Russia,  and  raw  materials  are 
abundant.    Great  Britain  and  the  United  States 


182  A  REVISION   OF   THE   TREATY 

and  their  markets  overseas  have  suffered  a  cyclical 
fluctuation  of  trade  prosperity  of  a  greater  ampli- 
tude than  ever  before;  but  there  are  indications 
that  the  worst  point  is  passed. 

Two  obstacles  remain.  The  Treaty,  though  un- 
executed, is  not  revised.  And  that  part  of  or- 
ganization, which  consists  in  currency  regulation, 
public  finance,  and  the  foreign  exchanges,  remains 
nearly  as  bad  as  it  ever  was.  In  most  European 
countries  there  is  still  no  proper  balance  between 
the  expenditure  of  the  State  and  its  income,  so 
that  inflation  continues  and  the  international  val- 
ues of  their  currencies  are  fluctuating  and  un- 
certain. The  suggestions  which  follow  are  mainly 
directed  towards  these  problems. 

Some  contemporary  plans  for  the  reconstruc- 
tion of  Europe  err  in  being  too  paternal  or  too 
complicated;  also,  sometimes,  in  being  too  pes- 
simistic. The  patients  need  neither  drugs  nor 
surgery,  but  healthy  and  natural  surroundings  in 
which  they  can  exert  their  own  recuperative 
powers.  Therefore  a  good  plan  must  be  in  the 
main  negative;  it  must  consist  in  getting  rid  of 
shackles,  in  simplifying  the  situation,  in  cancel- 
ing futile  but  injurious  entanglements.  At  pres- 
ent every  one  is  faced  by  obligations  which  they 
cannot  meet.  Until  the  problem  set  to  the  Fi- 
nance Ministers  of  Europe  is  a  possible  one,  there 


THE   SETTLEMENT   OF   EUROPE  183 

can  be  little  incentive  to  energy  or  to  the  exer- 
cise of  skill.  But  if  the  situation  was  made  such 
that  an  insolvent  country  could  have  only  itself 
to  blame,  then  the  highest  integrity  and  the  most 
accomplished  financial  technique  would,  in  each 
separate  country,  have  its  chance.  I  seek  by  the 
proposals  of  this  chapter,  not  to  prescribe  a  solu- 
tion, but  to  create  a  situation  in  which  a  solution 
is  possible. 

In  their  main  substance,  therefore,  my  sugges- 
tions are  not  novel.  The  now  familiar  project 
of  the  cancelation,  in  part  or  in  their  entirety,  of 
the  Reparation  and  Inter-allied  Debts,  is  a  large 
and  unavoidable  feature  of  them.  But  those  who 
are  not  prepared  for  these  measures  must  not 
pretend  to  a  serious  interest  in  the  Reconstruc- 
tion of  Europe. 

In  so  far  as  such  cancelation  or  abatement  in- 
volves concessions  by  Great  Britain,  an  English- 
man can  write  without  embarrassment  and  with 
some  knowledge  of  the  tendency  of  popular  opin- 
ion in  his  own  country.  But  where  concessions  by 
the  United  States  are  concerned  he  is  in  more  dif- 
ficulty. The  attitude  of  a  section  of  the  Amer- 
ican press  furnishes  an  almost  irresistible  tempta- 
tion to  deal  out  the  sort  of  humbug  (or  discrete 
half-truths)  which  are  believed  to  promote  cor- 
diality between  nations;  it  is  easy  and  terribly 
respectable;  and  what  is  much  worse,  it  may  even 


184  A  REVISION   OF   THE   TEEATY 

do  good  where  frankness  would  do  harm.  I  pur- 
sue the  opposite  course,  with  a  doubting  and  un- 
easy conscience,  yet  supported  (not  only  in  this 
chapter  but  throughout  my  book)  by  the  hope, 
possibly  superstitious,  that  openness  does  good 
in  the  long  run,  even  when  it  makes  trouble  at 
first. 

So  far.  Reparation  on  a  large  scale  has  not  been 
collected  from  Germany.  So  far,  the  Allies  have 
not  paid  interest  to  the  United  States  on  what 
they  owe.  Our  present  troubles,  when  they  are 
not  attributable  to  the  after-effects  of  war  and 
the  cyclical  depression  of  trade,  are  due,  therefore, 
not  to  the  enforcement  of  these  claims,  but  to  the 
uncertainties  of  their  possible  enforcement.  It 
follows,  therefore,  that  merely  to  put  off  the  prob- 
lem will  do  us  no  good.  That  is  what  we  have 
been  doing  for  two  years  already.  Even  to  re- 
duce our  Reparation  demands  to  Germany's  maxi- 
mum actual  capacity  and  really  force  her  to  pay 
them,  might  make  matters  worse  than  they  are. 
To  write  down  inter-ally  debts  by  half  and  then 
try  to  collect  them,  would  be  an  aggravation,  not 
a  cure,  of  the  existing  difficulties.  The  solution, 
therefore,  must  not  be  one  which  tries  to  extract 
the  last  theoretical  penny  from  everybody;  its 
main  object  must  be  to  set  the  Finance  Ministers 
of  every  country  a  problem  not  incapable  of  wise 
solution  over  the  next  five  years. 


THE  SETTLEMENT  OF  EUROPE  185 

I.  The  Revision  of  the  Treaty 

The  Reparation  Commission  have  assessed  the 
Treaty  claims  at  138  milliard  gold  marks,  of  whicH 
132  milliards  are  for  pensions  and  damage  and  6 
milliards  for  Belgian  debt.  They  have  not  stated 
in  what  proportions  the  132  milliards  are  divided 
between  pensions  and  damages.  My  own  assess- 
ment of  the  Treaty  claims  (p.  131  above)  is  110 
milliards,  of  which  74  milliards  are  for  pensions 
and  allowances,  30  milliards  for  damage  and  6 
milliards  for  Belgian  debt. 

The  arguments  of  Chapter  VI  make  it  incum- 
bent on  those  who  are  convinced  by  them  to  aban- 
don as  dishonorable  the  claims  to  pensions  and 
allowances.  This  reduces  the  claims  to  36  mil- 
liards, a  sum  which  it  may  not  be  in  our  interest 
to  exact  in  full,  but  which  is  probably  within  Ger- 
many's theoretical  capacity  to  pay. 

Apart  from  clearing  out  of  the  way  various 
clauses  which  are  no  longer  operative  or  useful, 
and  from  terminating  the  occupation  on  condi- 
tions set  forth  below,  T  should  limit  my  Revision 
of  the  Treaty  to  this  simple  stroke  of  the  pen. 
Let  the  present  assessment  of  138  milliard  gold 
marks  be  replaced  by  36  milliard  gold  marks. 

We  are  strictly  entitled  under  the  Armistice 
Terms  to  these  36  milliards;  and  if  prudence 
recommends  an  abatement  below  that  figure,  such 


186 


A  EEVISIOX  OF  THE   TREATY 


abatement  can  properly  be  made,  on  terms,  by 
those  and  those  only  who  are  entitled  to  the  claims. 
I  estimate  with  some  confidence  that  this  sum  of 
36  milliards  is  divisible  between  the  Allies  about 
in  the  proportions  shown  in  the  table  below. 

The  payment  by  Germany  of  5  per  cent  inter- 
est and  1  per  cent  sinking  fund  on  this  total  sum 
is  not,  in  my  judgment,  theoretically  impossible. 
But  it  could  only  be  done  by  stimulating  her  ex- 
port industries  in  a  manner  injurious  and  irritat- 
ing to  Great  Britain,  and  by  imposing  on  her 


British  Empire 

France    

Belgium    

Italy 

United  States 
Others  


Damage. 


9 

16 

3 

1 


30 


Belgian  Debt. 


Total. 


11 
18 
3 
1 
2 
1 


36 


Treasury  a  financial  problem  of  such  difficulty 
that  it  would  tend  to  unsound  finance  and  to  weak, 
unstable  Governments.  Even  though  this  pay- 
ment is  theoretically  possible,  I  do  not  think  that 
it  is  practically  obtainable  over  a  period  of  thirty 
years. 

I  recommend,  therefore,  that,  as  a  separate  ar- 
rangement from  the  Revision  of  the  Treaty  as 


THE  SETTLEMENT   OF  EUROPE  187 

above,  the  British  Empire  should  waive  the  whole 
of  their  claims,  with  the  exception  of  1  milliard 
gold  marks  reserved  for  a  special  purpose  ex- 
plained below,  and  should  undertake  to  square 
the  claims  of  Italy  and  the  minor  claimants  by 
cancelation  of  debt  owing  from  them;  thus  leav- 
ing Germany  to  pay  18  milliards  to  France  and  3 
milliards  to  Belgium  (on  the  assumption  that  the 
United  States  also  would  forego  the  trifle  due  to 
her).  This  sum  should  be  discharged  by  an  an- 
nual payment  of  6  per  cent  of  the  sum  due  (being 
5  per  cent  interest  and  1  per  cent  sinking  fund) 
over  a  period  of  thirty  years.  With  the  assist- 
ance of  minor  measures  to  ease  the  opening  pe- 
riod, it  is  reasonable  to  suppose  that  this  amount 
could  be  paid  w^ithout  serious  injury  to  any  one. 

In  so  far  as  it  proves  convenient  to  discharge 
this  liability  in  goods,  and  not  in  cash,  so  much 
the  better.  But  I  see  no  advantage  in  laying 
stress  on  this.  It  would  be  wiser  to  leave  Ger- 
many to  find  the  money  as  best  she  can,  any  pay- 
ment in  goods  being  by  mutual  agreement,  as  in 
the  Wiesbaden  plan. 

It  may  lead,  however,  to  great  anomalies  to  fix 
the  annual  payments  in  terms  of  gold  over  so  long 
a  period  as  thirty  years.  If  gold  prices  fall,  the 
burden  may  become  intolerable.  If  gold  prices 
rise,  the  claimants  may  be  cheated  of  their  ex- 
pectations.   The  annual  payment  should  be  ad- 


188  A  REVISION  OF  THE  TREATY 

justed,  therefore,  by  some  impartial  authority, 
with  reference  to  an  index  number  of  the  com- 
modity-value of  gold. 

The  other  Treaty  change  relates  to  the  Occu- 
pation. It  would  promote  peaceable  relations  in 
Europe  if,  as  a  part  of  the  new  settlement,  the 
Allied  troops  were  withdrawn  altogether  from 
German  territory,  and  all  rights  of  invasion  for 
whatever  purpose  waived,  except  by  leave  of  a 
majority  vote  of  the  League  of  Nations.  But  in 
return,  the  British  Empire  and  the  United  States 
should  guarantee  to  France  and  Belgium  all  rea- 
sonable assistance,  short  of  warfare,  in  securing 
satisfaction  for  their  reduced  claims;  whilst  Ger- 
many should  guarantee  the  complete  de-mili- 
tarization of  her  territory  west  of  the  Rhine. 

II.  The  Satisfaction  of  the  Allies 

France. — Is  it  in  the  interest  of  France  to  ac- 
cept this  settlement?  If  it  is  combined  with  fur- 
ther concessions  from  Great  Britain  and  the 
United  States  by  the  cancelation  of  her  debts  to 
them,  it  is  overwhelmingly  in  her  interest. 

Wliat  is  her  present  balance-sheet  of  claims  and 
liabilities'?  She  is  entitled  to  52  per  cent  of  what 
Germany  pays.  On  p.  75  I  have  calculated  what 
this  will  be  under  the  London  Settlement,  (a)  on 
the  basis  of  German  exports  at  the  rate  of  6  mil- 


THE   SETTLEMENT   OF   EUROPE  189 

liards,  namely  3.5G  milliard  gold  marks;  and  (/-») 
on  the  basis  of  exports  at  the  rate  of  10  milliards, 
namely  4.60  milliard  gold  marks.  France's  share, 
therefore,  is  1.85  milliards  per  annum  on  assump- 
tion (a),  and  2.39  milliards  on  assumption  (h). 
On  the  other  hand,  she  owes  the  United  States 
$3634  million  and  the  United  Kingdom  £557  mil- 
lion. If  these  sums  be  converted  into  gold  marks 
at  par,  and  the  annual  charge  on  them  is  cal- 
culated at  5  per  cent  for  interest  and  1  per  cent 
for  sinking  fund,  her  liability  is  1.48  milliards 
per  annum.  That  is  to  say,  if  Germany  pays  in 
full  and  if  the  more  favorable  assumption  (b)  is 
adopted  as  to  the  growth  of  her  exports,  the  most 
for  which  France  can  hope  under  existing  arrange- 
ments is  a  net  sum  of  .91  milliard  gold  marks 
(£45,500,000  gold)  per  annum.  Whereas  under  the 
revised  scheme  she  will  not  only  be  entitled  to  a 
greater  sum,  namely  1.08  milliard  gold  marks 
(£54,000,000  gold)  per  annum;  but,  inasmuch  as 
she  will  be  accorded  a  priority  on  Germany's  avail- 
able resources,  and  as  the  total  charge  is  within 
Germany's  capacity,  she  may  reasonably  expect 
to  be  paid. 

My  proposal  provides  for  the  complete  restora- 
tion of  the  devastated  provinces  at  a  fair  val- 
uation of  the  actual  damage  done,  and  it  abandons 
other  rival  claims  which  stand  in  the  way  of  the 
priority    of   this    paramount   claim.     But    apart 


190  A  REVISION  OF  THE  TREATY 

from  this,  about  which  opinions  will  differ,  and 
apart  from  the  increased  likelihood  which  it  af- 
fords of  really  getting  payment,  France  will  ac- 
tually receive  a  larger  sum  than  if  the  letter  of 
the  existing  agreements  is  adhered  to  all  round. 

Belgium  is  entitled  at  present  to  8  per  cent  of 
the  receipts,  which  under  the  London  Settlement 
would  amount  to  280  million  gold  marks  per  annum 
on  assumption  {a)  and  368  million  on  assump- 
tion {h).  Under  the  new  proposal  she  will  re- 
ceive 180  million  gold  marks  per  annum  and  will 
gain  in  certainty  what  she  loses  in  possible  re- 
ceipts. The  satisfaction  of  her  existing  priority 
should  be  adjusted  by  mutual  agreement  between 
herself  and  France. 

Italy  would  gain  immensely.  She  is  entitled  to 
10  per  cent  of  the  receipts  under  the  London  Set- 
tlement (together  with  some  claims  on  proble- 
matical receipts  from  Austria  and  Bulgaria) ; 
that  is  to  say,  326  million  gold  marks  per  annum 
on  assumption  {a)  and  460  million  on  assumption 
{h).  But  these  sums  are  far  below  the  annual 
charge  of  her  obligations  towards  the  United 
Kingdom  and  the  United  States,  which,  converted 
into  gold  marks  on  the  same  basis  as  that  em- 
ployed above  in  the  case  of  France,  amounts  to 
1000  million  gold  marks  per  annum. 


THE  SETTLEMENT   OF  EUROPE  191 

III.  The  Assistance  of  New  States 

i  have  reserved  above,  out  of  the  claims  of 
Great  Britain,  a  sum  of  one  milliard  gold  marks, 
with  the  object,  not  that  she  should  retain  this 
sum  for  herself,  but  that  she  should  use  it  to  ease 
the  financial  problems  of  two  states  for  which  she 
has  a  certain  responsibility,  namely  Austria  and 
Poland. 

Austria's  problems  are  well  known  and  attract 
a  general  sympathy.  The  Viennese  were  not 
made  for  tragedy ;  the  world  feels  that,  and  there 
is  none  so  bitter  as  to  wish  ill  to  the  city  of  Mozart. 
Vienna  has  been  the  capital  of  degenerate  great- 
ness, but,  released  from  imperial  temptations,  she 
is  now  free  to  fulfil  her  true  role  of  providing 
for  a  quarter-part  of  Europe  the  capital  of  com- 
merce and  the  arts.  Somehow  she  has  laughed 
and  cried  her  way  through  the  last  two  years ;  and 
now,  I  think,  though  on  the  surface  her  plight  is 
more  desperate  than  before,  a  very  little  help  will 
be  enough.  She  has  no  army,  and  by  virtue  of 
the  depreciation  of  her  money  a  trifling  internal 
debt.  Too  much  help  may  make  of  her  a  lifelong 
beggar;  but  a  little  will  raise  her  from  de- 
spondency and  render  her  financial  problem  no 
longer  beyond  solution. 

My  proposal,  then,  is  to  cancel  the  debts  she 
owes   to  foreign  governments,   including  empty 


192  A  REVISION   OF   THE   TREATY 

claims  to  Reparation,  and  to  give  her  a  compara- 
tively small  sum  out  of  the  milliard  gold  marks 
reserved  from  British  claims  on  Germany.  Cred- 
its placed  at  her  disposal  in  Berlin,  equivalent 
in  value  to  300  million  gold  marks,  to  be  available, 
as  required,  over  a  period  of  five  years,  might  be 
enough. 

For  the  other  new  States,  the  cancelation  of 
debt  owing,  and,  in  the  case  of  Hungary,  of  Repa- 
ration claims,  should  be  enough,  except  for 
Poland. 

Poland,  too,  must  be  given  a  possible  problem, 
but  it  is  not  easy  to  be  practical  with  so  imprac- 
ticable a  subject.  Her  main  problem  can  be 
solved  only  by  time,  and  the  recovery  of  her 
neighbors.  I  deal  here  only  with  the  urgent  ques- 
tion of  making  just  possible  for  her  a  reorgan- 
ization of  currency,  and  of  facilitating  a  peace- 
able intercourse  between  herself  and  Germany. 
For  this  purpose  I  would  assign  to  her  the  bal- 
ance of  the  reserved  milliard,  namely,  700  million 
gold  marks,  of  which  the  annual  interest  should 
be  available  to  her  unconditionally,  but  of  which 
the  capital  should  be  employed  only  for  a  cur- 
rency reorganization,  under  conditions  to  be 
approved  by  the  United  States  and  Great  Brit- 
ain. 

In  its  essentials  this  scheme  is  very  simple.  I 
think  that  it  satisfies  my  criterion  of  leaving  every 


THE  SETTLE:MENT  of  EUROPE  193 

Finance  Minister  in  Europe  with  a  possible  prob- 
lem. The  rest  must  come  gradually,  and  1  will 
not  burden  the  argument  of  this  book  by  consid- 
ering along  what  lines  the  detailed  solutions 
should  be  sought. 

Who  are  the  losers  ?  Even  on  paper — far  more 
in  reality — every  continental  country  gains  an  ad- 
vantage. But  on  paper  the  United  States  and  the 
United  Kingdom  are  losers.  "^NTiat  is  each  of 
them  giving  up? 

Under  the  London  Settlement  Great  Britain  is 
entitled  to  22  per  cent  of  the  receipts,  which  is 
from  780  to  1010  million  gold  marks  per  annum 
(£39,000,000  to  £50,500,000  gold)  according  to 
which  assumption  is  adopted  as  to  the  volume  of 
German  exports.  She  is  owed  by  various  Euro- 
pean governments  (including  Russia,  see  Appen- 
dix No.  IX.)  £1,800,000,000,  which  at  6  per  cent 
for  interest  and  sinking  fund  is  £108,000,000  per 
annum.  On  paper  she  would  forego  these  sums, 
say  £150,000,000  per  annum,  altogether.  In  actual 
fact,  her  })rospects  of  securing  more  than  a  frac- 
tion of  this  amount  are  remote.  Great  Britain 
lives  by  commerce,  and  most  Englishmen  now 
need  but  little  persuading  that  she  will  gain  more 
in  honor,  prestige,  and  wealth  by  employing  a 
prudent  generosity  to  preserve  the  equilibrium 
of  commerce  and  the  well-being  of  Europe,  than 
by  attempting  to  exact  a  hateful  and  crushing 


194  A  KEVISION   OF  THE   TREATY 

tribute,  whether  from  her  victorious  Allies  or  her 
defeated  enemy. 

The  United  States  would  forego  on  paper  a  cap- 
ital sum  of  about  6500  million  dollars,  which,  at 
6  per  cent,  represents  an  annual  charge  of  $390,- 
000,000  (£78,000,000  gold).  But  in  my  opinion 
the  chance  of  her  being  actually  paid  any  consid- 
erable amount  of  this,  if  she  tries  to  exact  it,  is 
decidedly  remote.^  Is  there  any  likelihood  of  the 
United  States  joining  in  such  a  scheme  soon 
enough  (for  I  feel  confident  she  will  cancel  these 
debts  in  the  end)  to  be  useful? 

Most  Americans,  with  whom  I  have  discussed 
this  question,  express  themselves  as  personally  fa- 
vorable to  the  cancelation  of  the  European  debts, 
but  add  that  so  great  a  majority  of  their  country- 
men think  otherwise  that  such  a  proposal  is  at 
present  outside  practical  politics.  They  think, 
therefore,  that  it  is  premature  to  discuss  it;  for 
the  present,  America  must  pretend  she  is  going 
to  demand  the  money  and  Europe  must  pretend 
she  is  going  to  pay  it.  Indeed,  the  position  is 
much  the  same  as  that  of  German  Reparation  in 

1  This  scheme  is  in  no  way  concerned  with  the  debt  of  Great 
Britain  to  the  United  States,  which  is  excluded  from  the  above 
figures.  The  question  of  the  right  treatment  of  this  debt  (which 
differs  from  the  others  chiefly  because  the  interest  on  it  is  capa- 
ble of  being  actually  collected  in  cash)  raises  other  issues  with 
which  I  am  not  dealing  here.  The  above  proposals  for  cancela- 
tion relate  solely  to  the  debts  owing  by  the  Governments  of  Con- 
tinental Europe  to  the  Governments  of  Great  Britain  and  the 
United  States. 


THE  SETTLEMENT   OF  EUROPE  195 

England  in  the  middle  of  1921.  Doubtless  my  in- 
formants are  right  about  this  public  opinion,  the 
mysterious  entity  which  is  the  same  thing  perhaps 
as  Rousseau's  General  Will.  Yet,  all  the  same, 
I  do  not  attach,  to  what  they  tell  me,  too  much 
importance.  Public  opinion  held  that  Hans  An- 
dersen's Emperor  wore  a  fine  suit;  and  in  the 
United  States  especially,  public  opinion  changes 
sometimes,  as  it  were,  en  bloc. 

If,  indeed,  public  opinion  were  an  unalterable 
thing,  it  would  be  a  waste  of  time  to  discuss  pub- 
lic affairs.  And  though  it  may  be  the  chief  busi- 
ness of  newsmen  and  politicians  to  ascertain  its 
momentary  features,  a  writer  ought  to  be  con- 
cerned, rather,  with  what  public  opinion  should 
be.  I  record  these  platitudes  because  many 
Americans  give  their  advice,  as  though  it  were 
actually  immoral  to  make  suggestions  which  pub- 
lic opinion  does  not  now  approve.  In  America,  I 
gather,  an  act  of  this  kind  is  considered  so  reck- 
less, that  some  improper  motive  is  at  once  sus- 
pected, and  criticism  takes  the  form  of  an  inquiry 
into  the  culprit's  personal  character  and  ante- 
cedents. 

Let  us  inquire,  however,  a  little  more  deeply 
into  the  sentiments  and  emotions  which  underlie 
the  American  attitude  to  the  European  debts. 
They  want  to  be  generous  to  Europe,  both  out  of 
good  feeling  and  because  many  of  them  now  sus- 


196  A  REVISION  OF  THE  TREATY 

pect  that  any  other  course  would  upset  their  own 
economic  equilibrium.  But  they  don't  want  to 
be  ''done."  They  do  not  want  it  to  be  said  that 
once  again  the  old  cynics  in  Europe  have  been 
one  too  many  for  them.  Times,  too,  have  been 
bad  and  taxation  oppressive;  and  many  parts  of 
America  do  not  feel  rich  enough  at  the  moment  to 
favor  a  light  abandonment  of  a  possible  asset. 
Moreover,  these  arrangements,  between  nations 
warring  together,  they  liken  much  more  closely 
than  we  do  to  ordinary  business  transactions  be- 
tween individuals.  It  is,  they  say,  as  though  a 
bank  having  made  an  unsecured  advance  to  a 
client,  in  whom  they  believe,  at  a  difhcult  time 
when  he  would  have  gone  under  without  it,  this 
client  were  then  to  cry  off  paying.  To  permit 
such  a  thing  would  be  to  do  an  injury  to  the  ele- 
mentary principles  of  business  honor. 

The  average  American,  I  fancy,  would  like  to 
see  the  European  nations  approaching  him  with  a 
pathetic  light  in  their  eyes  and  the  cash  in  their 
hands,  saying,  "America,  we  owe  to  you  our  lib- 
erty and  our  life;  here  we  bring  what  we  can  in 
grateful  thanks,  money  not  wrung  by  grievous 
taxation  from  the  widow  and  orphan,  but  saved, 
the  best  fruits  of  victory,  out  of  the  abolition  of 
armaments,  militarism.  Empire,  and  internal 
strife,  made  possible  by  the  help  you  freely  gave 
us."    And  then  the  average  American  would  re- 


THE   SETTLEMENT   OF  EUROPE  197 

ply:  "I  honor  you  for  your  integrity.  It  is  what 
I  expected.  But  I  did  not  enter  the  war  for  profit 
or  to  invest  my  money  well.  I  have  had  my  re- 
ward in  the  words  you  have  just  uttered.  The 
loans  are  forgiven.  Return  to  your  homes  and 
use  the  resources  I  release  to  uplift  the  poor  and 
the  unfortunate."  And  it  would  be  an  essential 
part  of  the  little  scene  that  his  reply  should  come 
as  a  complete  and  overwhelming  surprise. 

Alas  for  the  wickedness  of  the  world!  It  is  not 
in  international  affairs  that  we  can  secure  the  sen- 
timental satisfactions  which  we  all  love.  For  only 
individuals  are  good,  and  all  nations  are  dishonor- 
able, cruel,  and  designing.  In  deciding  whether 
Italy  (for  example)  must  pay  what  she  owes, 
America  must  consider  the  consequences  of  try- 
ing to  make  her  pay, — so  far  as  self-interest  is 
concerned,  in  terms  of  economic  equilibrium  be- 
tween America  and  Italy,  and,  so  far  as  generos- 
ity is  concerned,  in  terms  of  Italian  peasants  and 
their  lives.  And  whilst  the  various  Prime  ]\Iin- 
isters  will  telegraph  something  suitable,  drafted 
by  their  private  secretaries,  to  the  effect  that 
America's  action  makes  the  moment  of  writing 
the  most  important  in  the  history  of  the  world 
and  proves  that  Americans  are  the  noblest  crea- 
tures living,  America  must  not  exjiect  adequate 
or  appropriate  thanks. 

Nevertheless,   since   time   presses,   we   cannot 


198  A  REVISION  OF  THE  TREATY 

rely  on  American  assistance,  and  we  must  do 
without  it  if  necessary.  If  America  does  not  feel 
ready  to  participate  in  a  Conference  of  Revision 
and  Reconstruction,  Great  Britain  should  be  pre- 
pared to  do  her  part  in  the  cancelation  of  paper 
claims,  irrespective  of  similar  action  by  the  United 
States. 

The  simplicity  of  my  plan  may  be  emphasized 
by  summarizing  it.  (1)  Great  Britain,  and  if 
possible  America  too,  to  cancel  all  the  debts  owing 
them  from  the  Governments  of  Europe  and  to 
waive  their  claims  to  any  share  of  German  Repa- 
ration; (2)  Germany  to  pay  1260  million  gold 
marks  (£63,000,000  gold)  per  annum  for  30 
years,  and  to  hold  available  a  lump  sum  of  1000 
million  gold  marks  for  assistance  to  Poland  and 
Austria;  (3)  this  annual  payment  to  be  assigned 
in  the  shares  1080  million  gold  marks  to  France 
and  180  million  to  Belgium. 

This  would  be  a  just,  sensible,  and  permanent 
settlement.  If  France  were  to  refuse  it,  she 
would  indeed  be  sacrificing  the  substance  to  the 
shadow.  In  spite  of  superficial  appearances  to 
the  contrary,  it  is  also  in  the  self-interest  of  Great 
Britain.  Perhaps  British  public  opinion,  pro- 
foundly altered  though  it  now  is,  may  not  yet  be 
reconciled  to  obtaining  nothing.  But  this  is  a  case 
where  a  wise  nation  will  do  best  by  acting  in  a 
large  way.    I  haye  not  neglected  to  consider  with 


THE  SETTLEMENT  OF  EUROPE  199 

care  the  various  possible  devices  by  which  Great 
Britain  might  get,  or  appear  to  get,  something 
for  herself  from  the  settlement.  She  might  take, 
for  instance,  in  satisfaction  of  her  claims  some  of 
the  C  Bonds  under  the  London  Settlement,  which, 
having  a  third  priority  after  provision  for  the 
A  and  B  Bonds,  can  be  given  a  nominal  value  but 
are  really  worth  nothing.  She  might,  in  lieu  of 
receiving  a  share  of  the  proceeds  of  the  German 
customs,  stipulate  that  her  goods  should  be  ad- 
mitted into  Germany  free  of  duty.  She  might 
seek  a  partial  control  over  German  industries,  or 
obtain  the  services  of  German  organization  for  the 
future  exploitation  of  Russia.  Plans  of  this  sort 
attract  an  ingenious  mind  and  are  not  to  be  dis- 
carded too  hastily.  Yet  I  prefer  the  simple  plan, 
and  I  believe  that  all  these  devices  are  contrary 
to  true  wisdom. 

There  is  a  disposition  in  some  quarters  to  insist 
that  any  concessions  to  France  by  Great  Britain 
and  the  United  States,  affecting  Reparation  and 
Inter-Ally  Debt,  should  be  conditional  on  France's 
acceptance  of  a  more  pacific  policy  towards  the 
rest  of  the  world  than  that  to  which  she  herself 
appears  to  be  inclined.  I  hope  that  France  will 
abandon  her  opposition  to  proposals  for  reduced 
military  and  naval  establishments.  "What  a 
handicap  her  youth  will  suffer  if  she  maintains 
conscription  whilst  her  neighbors,  voluntarily  or 


200  A  KEVISION"  OF  THE   TREATY 

involun:arily,  have  abandoned  it !  Does  she  real- 
ize the  impossibility  of  friendship  between  Great 
Britain  and  any  neighboring  Power  which  em- 
barks on  a  large  program  of  submarines!  I 
hope,  too,  that  France  will  forget  her  dangerous 
ambitions  in  Central  Europe  and  will  limit  strictly 
those  in  the  Near  East;  for  both  are  based  on 
rubbishy  foundations  and  will  bring  her  no  good. 
That  she  has  anything  to  fear  from  Germany  in 
the  future  which  we  can  foresee,  except  what  she 
may  herself  provoke,  is  a  delusion.  Wlien  Ger- 
many has  recovered  her  strength  and  pride,  as 
in  due  time  she  will,  many  years  must  pass  before 
she  again  casts  her  eyes  Westward.  Germany's 
future  now  lies  to  the  East,  and  in  that  direction 
her  hopes  and  ambitions,  when  they  revive,  will 
certainly  turn. 

France  has  an  opportunity  now  of  consolidating 
her  national  position  into  one  of  the  stablest,  saf- 
est, richest  on  the  face  of  the  earth;  self-con- 
tained; well-  but  not  over-populated;  the  heir  of 
a  peculiar  and  splendid  civilization.  Neither 
whining  about  devastated  districts,  which  are  eas- 
ily repaired,  nor  boasting  of  military  hegemonies, 
which  can  quickly  ruin  her,  let  her  lift  up  her  head 
as  the  leader  and  mistress  of  Europe  in  the  peace- 
ful practices  of  the  mind. 

Nevertheless,  these  objects  are  not  to  be  gained 
by  bargaining  and  cannot  be  imposed  from  with- 


THE  SETTLEMENT  OF  EUROPE  201 

out.  Therefore  they  must  not  be  dragged  into 
the  Reparation  Settlement.  This  Settlement 
must  be  offered  France  on  one  condition  only, — 
that  she  accepts  it.  But  if,  like  Shylock,  she 
claims  her  pound  of  flesh,  then  let  the  Law  pre- 
vail. Let  her  have  her  bond,  and  let  us  have  our 
bonds  too.  Let  her  get  what  she  can  from  Ger- 
many and  pay  what  she  owes  to  the  United  States 
and  England. 

The  chief  question  for  dispute  is,  perhaps, 
whether  an  annual  payment  by  Germany  of  £63,- 
000,000  (gold)  is  enough.  I  admit  that  the  pay- 
ment of  a  somewhat  larger  sum  may  prove  to  be 
within  her  capacity.  But  I  recommend  this  fig- 
ure because  on  the  one  hand  it  is  sufficient  to  re- 
store the  destruction  done  in  France,  yet  on  the 
other  is  not  so  crushing  that,  to  make  Germany 
pay  it,  we  need  be  in  a  position  to  invade  her 
every  spring  and  autumn.  We  must  fix  the  pay- 
ment at  an  amount  which  Germany  herself  will 
recognize  as  not  unjust,  and  which  is  sufficiently 
within  her  maximum  capacity  to  leave  her  some 
incentive  to  work  and  pay  it  off. 

Suppose  that  we  knew  the  theoretical  maximum 
of  Germany's  capacity  to  produce  and  sell  abroad 
a  surplus  of  goods,  or  could  hit  on  some  sliding 
scale  which  would  automatically  absorb  year  by 
year  whatever  surplus  there  was;  should  we  be 
wise  to  demand  it?    The  project  of  extracting  at 


202  A  EEVISION  OF  THE  TREATY 

the  point  of  tlie  bayonet — for  that  is  what  it  would 
mean — a  payment  so  heavy  that  it  would  never  be 
paid  voluntarily,  and  to  go  on  doing  this  until  all 
the  makers  of  the  Peace  Treaty  of  Versailles 
have  been  long  dead  and  buried  in  their  local 
Valhallas,  is  neither  good  nor  sensible. 

My  own  proposals,  moderate  though  they  may 
seem  in  comparison  with  others,  throw  on  Ger- 
many a  very  great  burden.  They  procure  for 
France  an  enormous  benefit.  Frenchmen,  having 
fed  to  satiety  on  imaginary  figures,  are  nearly 
ready,  I  think,  to  find  a  surprising  flavor  and 
piquancy  in  real  ones.  Let  them  consider  what 
a  tremendous  financial  strength  my  scheme  would 
give  them.  Freed  from  external  debt,  they  would 
receive  in  real  values  each  year  for  thirty  years 
a  payment  equivalent  in  gold  to  nearly  half  the 
gold  reserve  now  held  by  the  Bank  of  France; 
and  at  the  end  of  the  set  period  Germany  would 
have  paid  back  ten  times  what  she  took  after  1870. 

Is  it  for  Englishmen  to  complain?  Are  they 
really  losers?  One  cannot  cast  up  a  balance-sheet 
between  incommensurables.  But  peace  and  amity 
might  be  won  for  Europe.  And  England  is  only 
asked  (as  I  fancy  she  knows  pretty  well,  by  now, 
in  her  bones)  to  give  up  something  which  she  will 
never  get  anyhow.  The  alternative  is  that  we  and 
the  United  States  will  be  jockeyed  out  of  our 
claims  amidst  a  general  international  disgust. 


APPENDIX  OF  DOCUMENTS 

I.    The  Spa  Agreement,  July  1920 

(A)  Summary'^  of  the  Agreement  upon  Reparations  be- 
tween the  Allies,  signed  by  ike  British  Empire, 
France,  Italy,  Japan,  Belgium,  and  Portugal. 

Article  1  provides  that  in  pursuance  of  the  Treaty  o^ 
Versailles  the  suuls  received  from  Germany  for  repara- 
tions shall  be  divided  in  the  following  proportions: 

France     62  per  cent. 

British  Empire   22         " 

Italy    10 

Belgium    8        " 

Japan  and  Portugal %  of  1  per  cent  each. 

The  remaining  6%  per  cent  is  reserved  for  the  Serbo- 
Croat-Slovene  State  and  for  Greece,  Rumania,  and  other 
Powers  not  signatories  of  the  Agreement. 

Article  2   provides  that  the  aggregate   amount  re- 
ceived for  reparation  from  Austria-Hungary  and  Bul- 
garia, together  with  amounts  that  may  be  received  in 
respect  of  the  liberation  of  territories  belonging  to  the 
former  Austi'O-Hungarian  Monarchy,  shall  be  divided : 
(a)  As  to  half  in  the  proportions  mentioned  in  Arti- 
cle 1. 
(&)  As  to  the  other  half,  Italy  shall  receive  40  per 
cent,  while  60  per  cent  is  reserved  for  Greece, 
Rumania,   and   the   Serbo-Croat-Slovene    State 
and  otlier  Powers  entitled  to  reparations  but 
not  signatorias  of  the  Agreement. 
Article  3  provides  that  the  Allied  Governments  shall 

•  The  following  is  the  ofTicial  summary  issued  at  the  time.  The 
complete  text  of  the  Agreement  has  not  been  published. 

203 


204  A  REVISION   OF   THE   TREATY 

adopt  measures  to  facilitate  if  necessary  the  issue  by 
Germany  of  loans  destined  for  the  internal  requirements 
of  that  country  and  to  the  prompt  discharge  of  the  Ger- 
man debt  to  the  Allies. 

Article  4  deals  in  detail  with  tlie  keeping  of  accounts 
by  the  Reparation  Commission. 

Article  5  secures  to  Belgium  her  priority  of  £100,- 
000,000  gold  and  enumerates  the  securities  affected  by 
such  priority.^ 

Article  6  deals  with  the  valuation  of  ships  sur- 
rendered under  the  various  Peace  Treaties,  and  provides 
for  the  allocation  of  sums  received  for  the  hire  of  such 
ships.  It  deals  also  with  questions  outstanding  as  to 
the  decisions  taken  by  the  Belgian  Prize  Courts.  Bel- 
gium receives  compensation  out  of  the  shares  of  other 
Allied  Powers. 

Article  7  refers  to  the  Allied  cruisers,  floating  docks, 
and  material  handed  over  under  the  Protocol  of  January 
10,  1920,  as  compensation  for  the  German  warships 
which  were  sunk. 

Article  8  declares  that  the  same  Protocol  shall  apply 
to  the  proceeds  of  the  sale  of  ships  and  war  material 
surrendered  under  the  naval  clauses  of  the  Treaty,  vir- 
tually including  the  proceeds  of  naval  war  material  sold 
by  the  Reparation  Commission. 

Article  9  gives  Italy  an  absolutely  prior  claim  to  cer- 
tain specified  sums  as  a  set-off  to  amounts  due  to  her  by 
Austria-Hungary  and  Bulgaria. 

Article  10  reserves  the  rights  of  Poland  and  declares 

that  this  Agreement  shall  not  apply  to  her. 

*  Of  which  the  most  tangible  were  400,000,000  Danish  kroner 
payable  in  respect  of  Sleswig,  certain  sums  were  from  Luxem- 
burg for  coal,  any  balance  available  in  respect  of  German  ships 
seized  as  prizes  in  Brazilian  ports,  and  any  balance  available 
towards  reparation  out  of  German  assets  in  the  United  States. 


APPENDIX  OF  DOCUMENTS  205 

Article  11  maintains  the  rights  of  countries  who  lent 
money  to  Belgium  before  November  11,  1918,  and  makes 
provision  for  repayment  immediately  after  satisfaction 
of  the  Belgian  claim  to  priority  in  respect  of  £100,- 
000,000. 

Article  12  maintains  the  rights  of  the  Allied  Powers 
to  the  repayment  of  credits  granted  to  ex-enemy  Powers 
for  the  purposes  of  relief. 

Article  13  reserves  the  question  of  fixing  the  cost  of 
the  armies  of  occupation  in  Germany  on  a  uniform  basis 
for  discussion  with  the  United  Slates  of  America. 

(B)   The  Allied  Note  to  Germany  on  the  Subject  of  Coal 
Deliveries 

1.  The  German  Government  undertakes  to  place  at 
the  disposal  of  the  Allies,  from  August  1,  1920,  for  the 
ensuing  six  mouths,  2,000,000  tons  of  coal  per  mouth, 
this  figure  having  been  approved  by  the  Reparation  Com- 
mission. 

2.  The  Allied  Governments  will  credit  the  Repara- 
tion accounts  with  the  value  of  this  coal,  as  far  as  it  is 
delivered  by  rail  or  inland  navigation,  and  it  will  be 
valued  at  the  German  internal  price  in  accordance  with 
Paragraph  6  (A),  Annex  V.,  Part  VIIL,  of  the  Treaty 
of  Versailles.  In  addition,  in  consideration  of  the  ad- 
mission of  the  right  of  the  Allies  to  have  coal  of  specified 
kind  and  quality  delivered  to  tliem,  a  premium  of  five 
gold  marks,  payable  in  cash  by  the  party  taking  delivery, 
shall  be  applied  to  the  acquisition  of  foodstuffs  for  the 
German  miners. 

3.  During  the  period  of  the  coal  deliveries  provided 
for  above,  the  stipulations  of  Paragraphs  2,  3,  and  4  of 
the  draft  Control  Protocol  of  July  11,  1920,  shall  be 


206  A  EEVISION"  OF   THE   TREATY 

put  in  force  at  once  in  the  modified  form  of  the  Annex 
hereto.     (See  below.) 

4.  An  agreement  shall  be  made  forthwith  between  the 
Allies  for  distribution  of  the  Upper  Silesian  coal  output 
by  a  Commission  on  which  Germany  will  be  represented. 
This  agreement  shall  be  submitted  for  the  approval  of 
the  Reparation  Commission. 

5.  The  Commission,  on  which  the  Germans  shall  be 
represented,  shall  meet  forthwith  at  Essen.  Its  purpose 
sJiall  be  to  seek  means  by  which  the  conditions  of  life 
among  the  miners  with  regard  to  food  and  clothing  can 
be  improved,  with  a  view  to  the  better  working  of  the 
mines. 

6.  The  Allied  Governments  declare  their  readiness 
to  make  advances  to  Germany  equal  in  amount  to  the 
difference  between  the  price  paid  under  Paragraph  2 
above,  and  the  export  price  of  German  coal,  f.o.b.  in 
German  ports,  or  the  English  export  price,  f.o.b.  in 
English  ports,  whichever  may  be  the  lowest,  as  laid  down 
in  Paragraph  VI.  (B)  of  Annex  V.,  Part  VIII.,  of  the 
Treaty  of  Versailles.  These  advances  shall  be  made  in 
accordance  with  Articles  235  and  251  of  the  Treaty  of 
Versailles.  They  shall  enjoy  an  absolute  priority  over 
all  other  Allied  claims  on  Germany.  The  advances  shall 
be  made  at  the  end  of  each  month,  in  accordance  with 
the  number  of  tons  delivered  and  the  average  f.o.b.  price 
of  coal  during  the  period.  Advances  on  account  shall 
be  made  by  the  Allies  at  the  end  of  the  first  month, 
without  waiting  for  exact  figures. 

7.  If  by  November  15,  1920,  it  is  ascertained  that  the 
total  deliveries  for  August,  September,  and  October  1920 
have  not  reached  6,000,000  tons,  the  Allies  will  proceed 
to  the  occupation  of  a  further  portion  of  German  terri- 
tory, either  the  region  of  the  Ruhr  or  some  other. 


APPENDIX   OF   DOCUMENTS  207 

Annex 

1.  A  pcrmaiieut  delegation  of  tlie  Reparation  Com- 
mission will  be  set  up  at  Berlin,  whose  mission  will  be 
to  satisfy  itself  by  the  following  means  that  the  deliv- 
eries of  coal  to  the  Allies  provided  for  under  the  Agree- 
ment of  July  15,  1920,  shall  be  carried  out:  The  pro- 
grammes for  the  general  distribution  of  output,  with 
details  of  origin  and  kind,  on  the  one  hand,  and  the 
orders  given  to  ensure  deliveries  to  the  Allied  Powers 
on  the  other  hand,  shall  be  drawn  up  by  the  responsible 
German  authorities  and  submitted  by  them  for  the  ap- 
proval of  the  said  delegation  a  reasonable  time  before 
their  despatch  to  the  executive  bodies  responsible  for 
their  execution. 

2.  No  modification  in  the  said  programme  which  ma^'' 
involve  a  reduction  in  the  amount  of  the  deliveries  to 
the  Allies  shall  be  put  into  eft'ect  without  prior  approval 
of  the  Delegation  of  the  Reparation  Commission  in 
Berlin. 

3.  The  Reparation  Commission,  to  which  the  German 
Government  must  periodically  report  the  execution  by 
the  competent  bodies  of  the  orders  for  deliveries  to  the 
Allies,  will  notify  to  the  interested  Powers  any  infrac- 
tion of  the  principles  adopted  herein. 

II.    TuE  Paris  Decisions,^  January  29,  1921 

1.  In  satisfaction  of  the  obligations  laid  on  her  by 
Articles  231  and  232  of  the  Treaty  of  Versailles,  Ger- 
many shall  pay,  apart  from  the  restitutions  which  she 
miLst  effect  in  conformity  with  Article  238  and  all  obli- 
gations under  the  Treaty: 

*  So  far  as  I  am  aware,  no  complete  oflHcial  text  of  these  de- 
cisions has  been  published  in  English.  The  above  is  translated 
from  the  French  text. 


208  a  KEVISION  OF   THE   TREATY 

(1)  Fixed  annuities,  payable  in  equal  instalments  at 
the  end  of  eaeh  six  montlis,  as  follows : 

milliard  gold  marks 
(a)  Two         annuities  of  2  (May  1,  1921 -May  1, 1923) 

(6)  Three  "  3  (May  1,  1923-May  1,  1926) 

(c)  Three  "  4  (May  1,  1926-May  1,  1929) 

(d)  Three  "  5  (May  1.  1929-May  1,  1932) 

(e)  Thirty-one        "  6  (May  1,  1932-May  1,  1963) 

(2)  Forty-two  annuities,  reckoning  from  May  1,  1921, 
equivalent  to  12  per  cent  of  the  value  of  Germany's 
exports,  levied  on  the  receipts  from  them  and  payable 
in  gold  two  months  after  the  conclusion  of  each  six- 
monthly  period. 

To  ensure  that  (2)  above  shall  be  completely  carried 
out,  Germany  will  accord  to  the  Reparation  Commission 
every  facility  for  verifying  the  amount  of  the  exports 
and  for  establishing  the  necessary  supervision. 

2.  The  German  Government  shall  deliver  forthwith 
to  the  Reparation  Commission  Bearer  Bonds  payable  at 
the  due  dates  laid  down  in  Article  1  (1)  of  the  present 
scheme,  and  of  an  amount  equal  to  each  of  the  six- 
monthly  instalments  payable  thereunder.  Instructions 
will  be  given  with  the  object  of  facilitating,  on  the  part 
of  such  Powers  as  may  require  it,  the  mobilisation  of 
the  portion  accruing  to  them  under  the  Agreements 
which  they  have  established  amongst  themselves. 

3.  Germany  shall  be  entitled  at  any  time  to  antici- 
pate the  fixed  portion  of  her  obligation. 

Payments  made  by  her  in  anticipation  shall  be  applied 
in  reduction  of  the  fixed  annuities  prescribed  in  Article 
1  (1),  discounted  at  a  rate  of  8  per  cent  up  to  May  1, 
1923,  6  per  cent  from  May  1,  1923,  to  May  1,  1925,  and 
5  per  cent  after  May  1,  ]925. 

4.  Germany  shall  not  embark  on  any  credit  operation 


APPENDIX  OF  DOCUMENTS  209 

abroad,  directly  or  indirectly,  without  the  approval  of 
the  Keparatioii  Commission,  This  restriction  applies  to 
the  Government  of  the  German  Empire,  the  Government 
of  the  German  States,  German  provincial  and  municipal 
autlioritics,  and  also  to  companies  and  enterprises  con- 
trolled by  these  Governments  and  authorities. 

5.  In  pursuance  of  Article  248  of  the  Treaty  of  Ver- 
sailles all  the  assets  and  revenues  of  the  German  Em- 
pire and  its  constituent  States  are  held  in  guarantee  of 
the  complete  execution  by  Germany  of  the  provisions  of 
this  scheme. 

The  receipts  of  the  German  Customs,  by  land  and 
sea,  in  particular  the  receipts  of  all  import  and  export 
duties  and  all  supplementary  taxes,  constitute  a  special 
pledge  for  the  execution  of  the  present  Agreement. 

No  modification  shall  be  introduced,  liable  to  dimin- 
ish the  yield  of  the  Customs,  without  the  Reparation 
Commission  approving  tlie  Customs  Legislation  and 
Regulations  of  Germany. 

The  whole  of  the  receipts  of  the  German  Customs  shall 
be  credited  to  the  account  of  the  German  Government, 
by  a  Rec-eiver-General  of  the  German  Customs,  nomi- 
nated by  the  German  Government  with  the  assent  of 
the  Reparation  Commission. 

In  the  event  of  Germany  failing  to  meet  one  of  the 
payments  laid  down  in  the  present  scheme: 

(1)  The  whole  or  part  of  the  receipts  of  the  German 
Customs  shall  be  taken  over  from  the  Receiver-General 
of  the  German  Customs  by  the  Reparation  Commission 
and  applied  by  it  to  the  obligations  in  which  Germany 
has  defaulted.  In  this  event  the  Reparation  Commis- 
sions shall,  if  it  deems  necessary,  itself  assume  the  ad- 
ministration and  collection  of  the  Customs  receipts. 

(2)  The  Reparation  Commission  shall  be  entitled,  in 


210  A  REVISION   OF   THE  TREATY 

addition,  to  require  the  German  Government  to  impose 
such  higher  tariffs  or  to  take  such  other  measures  to 
increase  its  resources  as  it  may  deem  indispensable. 

(3)  If  this  injunction  is  without  effect,  the  Commis- 
sion shall  be  entitled  to  declare  the  German  Government 
in  default  and  to  notify  this  state  of  affairs  to  the  Gov- 
ernments of  the  Allied  and  Associated  Powers  who  shall 
take  such  measures  as  they  think  justified. 

(Signed)     Henri  Jaspar. 

D.  Lloyd  George. 

Aristide  Briand. 

C.  Sforza. 

K.  ISHII. 
Pabis,  January  29,  1921. 

III.  Claims  Submitted  to  the  Reparation  Commis- 
sion BY  THE  Various  Allied  Nations,  as  Pub- 
lished BY  THE  Commission,^  February  23,  1921 

France 

I. — Damage  to  Property  {Reconstitution  Values) 

Frs.  (Paper) 

Industrial  damages 38,882,521,479 

Damage  to  buildings  (propriH6  bdtie)    36,892,500,000 

Damage  to  furniture  and  fittings    {dommages  mo- 

hiliers)     25,119,500,000 

Damage  to  land  {proprietS  non  Mtie)    21,671,546,225 

Damage  to  State  property   1,958,217,193 

Damage  to  public  works   2,583,299,425 

Other  damages 2,359,865,000 

Shipping  losses    5,009,618,722 

Damages  suffered  in  Algeria  and  colonies 10,710,000 

Do.  abroad    2,094,825,000 

Interest  at  5  per  cent  on  the  principal  (33,000,- 
000,000  francs,  in  round  figures,  between  No- 
vember 11,  1918,  and  May  1,  1921,  or  30 
months),  say,  in  round  figures 4,125,000,000 

*  The  Commission  published  at  the  same  time  a  warning  that  it 
had  not  adopted  these  claims,  but  was  about  to  examine  them. 


APPENDIX  OF   DOCUMENTS  211 

II. — Injuries  to  Persons 

Frs.  (Paper) 

Military  pensions   60,045,696,000 

Allowances  to  families  ot  mobilised  men 12,936,956,824 

Pensions  accorded  to  civilian  victims  of  the  war 

and  then  dependants   514,465,000 

Ill-treatment  inflicted  on  civilians  and  prisoners  of 

war 1,869,230,000 

Assistance  given  to  prisoners  of  war 976,906,000 

Insufficiency  of  salaries  and  wages 223,123,313 

Exactions    by   Germany   to   the  detriment   of   the 

civilian  population   1,267,615,939 


Total  of  the  French  claims 218,541,596,120 


Great  Britain 

£  Frs. 

Damage  to  property 7,936,456 

Shipping  losses    763,000,000 

J.osses  abroad 24,940,559 

Damage    to    river    and    canal 

shipping     4,000,000 

Military  pensions    1,706,800,000 

Allowances  to  families  of  mo- 
bilised men  7,597,832,086 

Pensions  for  civilian  victims. .  35,915,579 

Ill-treatment     inflicted     on 

civilians  and  prisoners. .  .  95,746 

Assistance  to  prisoners  of  war  12,663 

Insufficiency    of    salaries    and 

wages   6,372 


£2,542,070,375         Frs.  7,597,832,086 


Italy 

Damage  to  property  Lire  20,933.547,500 

Shipping  losses £128,000,000 

Military  pensions  Francs  31,041,000,000 

Allowances  to  families  of  mobilised  men...    Francs  0.885,130,395 
Civilian  victims  of  the  war  and  prisoners. .        Lire  12,153,289,000 

Total  Lire  33,086,836,000 

"      Francs  37.926,130,395 

"      £128,000,000 


212  A  REVISION   OF   THE   TREATY 

Belgium 
Damage  to  property  (present  value)  .Belgian  Frcs.  29,773,939,099 

Shipping  losses   (present  value) Belgian  Frcs.  180,708,250 

Military  pensions   French  Frcs.  1,637,285,512 

Allowances   to   families   of   mobilised 

men French  Frcs.  737,930,484 

Civilian  victims  and  prisoners  of  war  Belgian  Frcs.  4,295,998,454 

Total    Belgian  Frcs.  34,254,645,893 

"      French  Frcs.  2,375,215,996 

The  other  claims  may  be  summarised  as  follows : 

Japan  ....        297,593,000  yen  (shipping  losses). 

"        ....        454,063,000  yen   (allowances  to  families  of  mobil- 

ised  men). 

832,774,000  yen. 
Jugo-Slavia    8,496,091,000  dinars  (damage  to  property). 

"  19,219,700,112  francs   (injuries  to  persons) . 

Rumania..     9,734,015,287  gold  francs   (property  losses). 
"  9,296,663,076  gold  francs  (military  pensions). 

"  11,652,009,978  gold  francs  (civilians  and  prisoners  of 

war). 


31,099,400,188  gold  francs. 
Portugal  ..    1,944,261  contos  (1,574,907  contos  for  property  loss). 
Greece    ...   4,992,788,739    gold    francs    (1,883,181,542    francs    for 
property  loss ) . 

Brazil £1,216,714  (shipping  £1,189,144),  plus  598,405  francs. 

Czecho- 
slovakia   6,944,228,296   francs  and  5,614,947,990  kroner    (war- 
losses). 
618,204,007  francs  and  1,448,169,845  kroner  (Bolshe- 
vist invasion ) . 


7,612,432,103  francs  and  7,063,117,135  kroner. 

Siam 9,179,298  marks,  gold,  plus  1,169,821  francs. 

Bolivia  ...   £16,000. 

Peru    £56,236,  plus  107,389  francs. 

Haiti    $80,000,  plus  532,593  francs. 

Cuba $801,135. 

Liberia  ,. .  $3,977,135. 

Poland    ...  21,913,269,740  francs  gold,plus  500,000,000  marks  gold. 

European     ^ 

Danube  L  1,834,800   francs  gold,    15,048   francs   French,   and 

Commission  J  488,051  lei. 


APPENDIX  OF  DOCUMENTS  213 

IV.   The  First  Ultimatum  op  London,  M.vrch  3,  1921 

The  following  declaration  was  delivered  to  Dr.  Simons 
by  Mr.  Lloyil  George,  speaking  on  behalf  of  the  British, 
and  Allied  Governments,  by  word  of  mouth: 

"Tlie  Allies  have  been  conferring  upon  the  whole 
position  and  I  am  now  authorised  to  make  this  declara- 
tion on  their  behalf: 

"The  Treaty  of  Versailles  was  signed  less  than  two 
years  ago.  The  German  Government  have  already  de- 
faulted in  respect  of  some  of  its  most  important  pro- 
visions: the  delivery  for  trial  of  the  criminals,  who  have 
offended  against  the  laws  of  war,  disarmament,  the  pay- 
ment in  cash  or  in  kind  of  20,000,000,000  of  gold  marks 
(£1,000,000,000).  These  are  some  of  the  provisions. 
The  Allies  have  displayed  no  harsh  insistence  upon  the 
letter  of  their  bond.  They  have  extended  time,  they 
have  even  modified  the  character  of  their  demands;  but 
each  time  the  German  Government  failed  them. 

"In  spite  of  the  Treaty  and  of  the  honourable  under- 
taking given  at  Spa,  the  criminals  have  not  yet  been 
tried,  let  alone  punished,  although  the  evidence  has  been 
in  the  hands  of  the  German  Government  for  months. 
Military  organisations,  some  of  them  open,  some  clan- 
destine, have  been  allowed  to  spring  up  all  over  the  coun- 
try, equipped  with  arms  that  ought  to  have  been  sur- 
rendered. If  the  German  Government  had  shown  in 
respect  of  reparations  a  sincere  desire  to  help  the  Allies 
to  repair  the  terrible  losses  inflicted  upon  them  by  the 
act  of  aggression  of  which  the  German  Imperialist  Gov- 
ernment was  guilty,  we  should  still  have  been  ready  as 
before  to  make  all  allowances  for  the  legitimate  difficul- 
ties of  Germany,  But  the  proposals  put  forward  have 
reluctantly  convinced  the  Allies  either  that  the  German 


214  A  REVISION  OF  THE  TREATY 

Government  does  not  intend  to  carry  out  its  Treaty 
obligations,  or  that  it  has  not  the  strength  to  insist,  in 
the  face  of  selfish  and  sihort-sighted  opposition,  upon  the 
necessary  sacrifices  being  made. 

*'If  that  is  due  to  the  fact  that  German  opinion  will 
not  permit  it,  that  makes  the  situation  still  more  seri- 
ous, and  renders  it  all  the  more  necessary  that  the 
Allies  should  bring  the  leaders  of  public  opinion  once 
more  face  to  face  with  facts.  The  first  essential  fact 
for  them  to  realise  is  this — that  the  Allies,  whilst  pre- 
pared to  listen  to  every  reasonable  plea  arising  out  of 
Germany's  difficulties,  cannot  allow  any  further  palter- 
ing with  the  Treaty. 

The  Ultimatum 

"We  have  therefore  decided^ — having  regard  to  the 
infractions  already  committed,  to  the  determination  in- 
dicated in  these  proposals  that  Germany  means  still 
further  to  defy  and  explain  away  the  Treaty,  and  to  the 
challenge  issued  not  merely  in  these  proposals  but  in 
official  statements  made  in  Germany  by  the  German 
Government — that  we  must  act  upon  the  assumption  that 
the  German  Government  are  not  merely  in  default,  but 
deliberately  in  default ;  and  unless  we  hear  by  Monday 
that  Germany  is  either  prepared  to  accept  the  Paris 
decisions  or  to  submit  proposals  which  will  in  other 
ways  be  an  equally  satisfactory  discharge  of  her  obliga- 
tions under  the  Treaty  of  Versailles  (subject  to  the 
concesvsions  made  in  the  Paris  proposals),  we  shall,  as 
from  that  date,  take  the  following  course  under  the 
Treaty  of  Versailles. 

"The  Allies  are  agreed: 

(1)  To  occupy  the  towns  of  Duisburg,  Ruhrort,  and 
Diisseldorf,  on  the  right  bank  of  the  Rhine. 


APPENDIX  OF  DOCUMENTS  215 

(2)  To  obtain  powers  from  their  respective  Parlia- 

meuts  requiring  tlicir  nationals  to  pay  a  cer- 
tain proportion  of  all  payments  due  to  Ger- 
many on  German  goods  to  their  several  Goveru- 
nients,  such  proportion  to  be  retained  on  ac- 
count of  reparations.  (This  is  in  respect  of 
goods  purchased  cither  in  this  country  or  in 
any  other  Allied  country  from  Germany.) 

(3)  (a)   The  amount  of  the  duties  collected  by  the 

German  Customs  houses  on  the  external  fron- 
tiers of  the  occupied  territories  to  be  paid  to 
the  Reparation  Commission. 

(&)  These  duties  to  continue  to  be  levied  in 
accordance  with  the  German  tariff. 

(c)  A  line  of  Customs  houses  to  be  tem- 
porarily established  on  the  Rhine  and  at  the 
boundary  of  the  tetes  des  ponts  occupied  by 
the  Allied  troops ;  the  tariff  to  be  levied  on  this 
line,  botli  on  tlie  entry  and  export  of  goods,  to 
be  determined  by  the  Allied  High  Commission, 
of  the  Rhine  territory  in  conformity  with  the 
instructions  of  the  Allied  Governmeoits. " 

V.  The  German  Counter-proposal,  as  Transmitted 
TO  THE  United  States  Government,  April  24, 
1921 

The  United  States  Government  have,  by  their  Note  of 
April  22,  opened  the  possibility,  in  a  way  which  is  thank- 
fully acknowledged,  of  solving  the  reparations  problem 
once  more  by  negotiations  ere  a  solution  is  effected  by 
coercive  measures.  The  German  Government  appreci- 
ates this  step  in  its  full  importance.  They  have  in  the 
following  proposals  endeavoured  to  offer  that  which  ac- 


216  A  REVISION  OF  THE  TREATY 

cording  to  their  convictions  represeuts  the  utmost  limit 
which  Germany 's  economic  resources  can  bear,  even  with 
the  most  favourable  developments : 

1.  Germany  expresses  her  readiness  to  acknowledge 
for  reparation  purposes  a  total  liability  of  50  milliard 
gold  marks  (present  value).  Gennany  is  also  prepared 
to  pay  the  equivalent  of  this  sum  in  annuities,  adapted 
to  her  economic  capacity  up  to  an  aggregate  of  200  mil- 
liard gold  marks.  Germany  proposes  to  mobilise  her 
liability  in  the  following  way : 

2.  Germany  to  raise  at  once  an  international  loan,  of 
which  amount,  rate  of  interest,  and  amortisation  quota 
are  to  be  agreed  on.  Germany  will  participate  in  this 
loan,  and  its  terms,  in  order  to  secure  the  greatest  possi- 
ble success,  will  contain  special  concessions,  and  gen- 
erally be  made  as  favourable  as  possible.  Proceeds  of 
this  loan  to  be  placed  at  the  disposal  of  the  Allies. 

3.  On  the  amount  of  her  liability  not  covered  by  the 
international  loan  Germany  is  prepared  to  pay  interest 
and  amortisation  quota  in  accordance  with  her  economic 
capacity.  In  present  circumstances  she  considers  the 
rate  of  4  per  cent  the  highest  possible. 

4.  Germany  is  prepared  to  let  the  Powers  concerned 
have  the  benefit  of  improvements  in  her  economic  and 
financial  situation.  For  this  purpose  the  amortisation 
quota  should  be  made  variable.  In  case  an  improve- 
ment should  take  place,  the  quota  would  rise,  whilst  it 
would  correspondingly  fall  if  developments  should  be 
in  the  other  direction.  To  regulate  such  variations  an 
index  scheme  would  have  to  be  prepared. 

5.  To  accelerate  the  redemption  of  the  balance,  Ger- 
many is  ready  to  assist  with  all  her  resources  in  the 
reconstruction  of  the  devastated  territories.  She  con- 
siders reconstruction  the  most  pressing  part  of  repara- 


APPENDIX  OF  DOCUMENTS  217 

tion,  because  it  is  the  most  effective  way  to  combat  the 
liatred  aud  misery  caused  by  the  war.  She  is  prepared 
to  undertake,  herself,  the  rebuilding  of  townships,  vil- 
lages, aud  hamlets,  or  to  a>isist  in  the  reconstruction  with 
labour,  material,  aud  her  otlier  resources,  in  any  way 
the  Allies  may  desire.  The  cost  of  such  labour  and  ma- 
terial sJie  would  pay  herself.  (Full  details  about  this 
matter  have  been  conuuunicated  to  the  Reparation  Com- 
mission.) 

6.  Apart  from  any  reconstruction  work  Germany  is 
prepared  to  supply  for  the  same  purpose,  to  States  con- 
cerned, any  other  materials,  and  to  ix^nder  them  any 
other  sen'ices  as  far  as  possible  on  a  purely  commercial 
basis. 

7.  To  prove  tlie  sincerity  of  her  intention  to  make 
reparation  at  once,  and  in  an  unmistakable  way,  Ger- 
many is  prepared  to  place  immediately  at  the  disposal 
of  the  Reparation  Commission  the  amount  of  one  mil- 
liard gold  marks  in  the  following  manner:  First,  150,- 
000,000  gold  marks  in  gold,  silver,  and  foreign  bills; 
secondly,  850,000,000  gold  marks  in  Treasury  bills,  to  be 
redeemed  within  a  period  not  exceeding  three  months 
by  foreign  bills  and  otlier  foreign  values. 

8.  Germany  is  further  prepared,  if  the  United  States 
and  the  Allies  should  so  desire,  to  assume  part  of  the 
indebtedness  of  the  Allies  to  the  United  States  as  far  as 
her  economic  capacity  will  allow  her. 

9.  In  respect  of  the  metliod  by  which  the  German 
expenditures  for  reparation  purposes  should  be  cred- 
ited against  her  total  liability,  Germany  proposes  that 
prices  and  values  should  be  fixed  by  a  commission  of 
experts. 

10.  Germany  is  prepared  to  secure  subscribers  for  the 
loan  in  every  pos.sibIe  way  by  assigning  to  them  public 


218  A  REVISION  OF  THE  TREATY 

properties  or  public  income  in  a  way  to  be  arranged  for. 

11.  By  the  acceptance  of  these  proposals  all  other 
German  liabilities  on  reparation  account  are  cancelled, 
and  German  private  property  abroad  released. 

12.  Germany  considers  that  her  proposals  can  only  be 
realised  if  the  system  of  sanctions  is  done  away  with 
at  once;  if  the  present  basis  of  German  production  is 
not  further  diminished;  and  if  the  German  nation  is 
again  admitted  to  the  world's  commerce  and  freed  of 
all  unproductive  expenditure. 

These  proposals  testify  to  the  German  jSrm  will  to 
make  good  damage  caused  by  the  war  up  to  the  limit  of 
her  economic  capacity.  The  amounts  offered,  as  well  as 
mode  of  payment,  depend  on  this  capacity.  As  far  as 
differences  of  opinion  as  to  this  capacity  exist,  the  Ger- 
man Government  recommend  that  they  be  examined  by 
a  commission  of  recognised  experts  acceptable  to  all  the 
interested  Governments.  She  declares  herself  ready  in 
advance  to  accept  as  binding  any  decision  come  to  by  it. 
Should  the  United  States  Government  consider  negotia- 
tions could  be  facilitated  by  giving  the  proposals  an- 
other form,  the  German  Government  would  be  thankful 
if  their  attention  were  drawn  to  points  in  which  the 
TJnited  States  Government  consider  an  alteration  desira- 
ble. The  German  Government  would  also  readily  re- 
ceive any  other  proposals  the  United  States  Government 
might  feel  inclined  to  make. 

The  German  Government  is  too  firmly  convinced  that 
the  peace  and  welfare  of  the  world  depend  on  a  prompt, 
just,  and  fair  solution  of  the  reparation  problem  not  to 
do  everything  in  their  power  to  put  the  United  States 
in  a  position  which  enables  them  to  bring  the  matter  to 
the  attention  of  the  Allied  Gt)vernments>.- — Berlin^  April 
24,  1921. 


APPENDIX  OF  DOCUMENTS  219 

VI.   The  Assessment  Announced  by  the  Reparation 
Commission,  April  30,  1921 

The  Reparation  Commission,  in  discharge  of  the  pro- 
vLsioiis  of  Article  233  of  the  Treaty  of  Versailles,  has 
reached  a  unajiimous  decision  to  fix  at  132  milliard  gold 
marks  the  total  of  the  damages  for  which  reparation  is 
due  by  Germany  under  Article  232  (2)  and  Part  VIII., 
Annex  I.  of  tlie  said  Treaty. 

In  fixing  tills  figure  the  Commission  have  made  the 
necessary  deductions  froni  the  total  of  damages  to  cover 
restitutiotis  effected  or  to  be  effected  in  discharge  of 
Article  238,  so  that  no  credit  will  be  due  to  Germany 
from  the  fact  of  these  restitutions. 

The  Commission  have  not  included  in  the  above  figure 
the  sum  corresponding  to  the  obligation,  which  falls  on 
Germany  as  an  addition  in  virtue  of  Article  232  (3), 
"to  make  reimbursement  of  all  sums  which  Belgium  has 
borrowed  from  the  Allied  and  Associated  Governments 
up  to  November  11,  1918,  together  with  interest  at  the 
rate  of  5  per  cent  per  annum  on  such  sums." 

VII.   The  Second  Ultimatum  of  London,  May  5,  1921 

The  Allied  Powers,  taking  note  of  the  fact  that,  in 
spite  of  the  successive  concessions  made  by  the  Allies 
since  the  signature  of  the  Treaty  of  Versailles,  and  in 
spite  of  the  warnings  and  sanctions  agreed  upon  at  Spa 
and  at  Paris,  as  well  as  of  the  sanctions  announced  in 
London  and  since  applied,  the  German  Government  is 
still  in  default  in  the  fulfilment  of  the  obligations  in- 
cumbent upon  it  under  the  terms  of  the  Treaty  of  Ver- 
sailles as  regards  (1)  disarmament;  (2)  the  payment 
due  on  May  1,  1921,  under  Article  235  of  the  Treaty, 


220  A  REVISION"  OF  THE  TREATY 

which  the  Keparation  Commission  has  already  called 
upon  it  to  make  at  this  date;  (3)  the  trial  of  the  war 
criminals  as  further  provided  for  by  the  Allied  Notes 
of  February  13  and  May  7,  1920;  and  (4)  certain  other 
important  respects,  notably  those  which  arise  under 
Articles  264  to  267,  269,  273,  321,  322,  and  327  of  the 
Treaty,  decide: — 

(a)  To  proceed  forthwith  with  such  preliminary 
measures  as  may  be  required  for  the  occupa- 
tion of  the  Ruhr  Valley  by  the  Allied  Forces  on 
the  Rhine  in  the  contingency  provided  for  in 
Paragraph  (d)  of  this  Note. 

(6)  In  accordance  with  Article  233  of  the  Treaty  to 
invite  the  Reparation  Commission  to  prescribe 
to  the  German  Government  without  delay  the 
time  and  manner  for  securing  and  discharging 
the  entire  obligation  incumbent  upon  that  Gov- 
ernment, and  to  announce  their  decision  on 
this  point  to  the  German  Government  at  latest 
on  May  6. 

(c)  To  call  upon  the  German  Government  categori- 
cally to  declare  within  a  period  of  six  days  from 
the  receipt  of  the  above  decision  its  resolve  (1) 
to  carry  out  without  reserve  or  condition  their 
obligations  as  defined  by  the  Reparation  Com- 
mission; (2)  to  accept  without  reserve  or  con- 
dition the  guarantees  in  respect  of  those  obliga- 
tions prescribed  by  the  Reparation  Commis- 
sion; (3)  to  carry  out  without  reserve  or  delay 
the  measures  of  military,  naval,  and  aerial  dis- 
armament notified  to  the  German  Government 
by  the  Allied  Powers  in  their  Note  of  January 
29,  1921,  those  overdue  being  completed  at  once, 


APPENDIX  OF  DOCUMENTS  221 

and  the  remainder  by  the  prescribed  dates ; 
(4)  to  carry  out  without  reserve  or  delay  the 
trial  of  the  war  criminals  and  the  other  unful- 
filled portions  of  the  Treaty  referred  to  in  the 
first  paragraph  of  this  Note. 
(d)  Failing  fulfilment  by  the  German  Government  of 
tlic  above  conditions  by  ]\Iay  12,  to  proceed  to 
the  occupation  of  the  Valley  of  the  Ruhr  and 
to  take  all  other  military  and  naval  measures 
that  may  be  required.  Such  occupation  will 
continue  so  long  as  Germany  fails  to  comply 
with  the  conditions  summarised  in  Paragraph 
(c). 

(Signed)     Henri  Xyspar. 

A.  Briand 

D.  Lloyd  George. 

C.  Sforza. 

Hayashi. 

Schedule  of  Payments  Prescribing  the  Time  and  Manner 
for  Securing  and  Discharging  the  Entire  Obliga- 
tion of  Germany  for  Reparation  under  Articles  231, 
232,  and  233  of  the  Treaty  of  Versailles. 

The  Reparation  Commission  has,  in  accordance  with 
Article  233  of  the  Treaty  of  Versailles,  fixed  the  time 
and  manner  for  securing  and  discharging  the  entire 
obligation  of  Germany  for  Reparation  under  Articles 
231,  232,  and  233  of  the  Treaty  as  follows:— 

This  determination  is  without  prejudice  to  the  duty 
of  Germany  to  maJ<e  restitution  under  Article  238,  or  to 
other  obligations  under  the  Treaty. 

1.  Germany  will  perform  in  the  manner  laid  down  in 
this  Schedule  her  obligati-ons  to  pay  the  total  fixed  in 
accordance  with  Articles  231 ,  232,  and  233  of  the  Treaty 


222  A  REVISION  OF   THE   TREATY 

of  Versailles  by  the  Commission — viz.  132  milliards  of 
gold  marks  (£6,600,000,000)  less  (a)  the  amount  already 
paid  on  account  of  Reparation;  (6)  sums  which  may 
from  time  to  time  be  credited  to  Germany  in  respect  of 
State  properties  in  ceded  territory,  etc.;  and  (c)  any 
sums  received  from  other  enemy  or  ex-enemy  Powers  in 
respect  of  which  the  Commission  may  decide  that  credits 
should  be  given  to  Germany,  plus  the  amount  of  the  Bel- 
gian debt  to  the  Allies,  the  amounts  of  these  deductions 
and  additions  to  be  determined  later  by  the  Commission. 
2.  Germany  shall  create  and  deliver  to  the  Commis- 
sion in  substitution  for  bonds  already  delivered  or  de- 
liverable under  Paragraph  12  (c)  of  Annex  2  of  Part 
VIII.  (Reparation)  of  the  Treaty  of  Versailles  the  bonds 
hereinafter  described. 

{A)  Bonds  for  an  amount  of  12  milliard  gold  marks 
(£600,000,000).  These  bonds  shall  be  created  and  de- 
livered at  latest  on  July  1,  1921.  There  shall  be  an 
annual  payment  from  funds  to  be  provided  by  Germany 
as  prescribed  in  this  agreement,  in  each  year  from  May  1, 
1921,  equal  in  amount  to  6  per  cent  of  the  nominal  value 
of  the  issued  bonds,  out  of  which  there  shall  be  paid 
interest  at  5  per  cent  per  annum,  payable  half-yearly  on 
the  bonds  outstanding  at  any  time,  and  the  balance  to 
sinking  fund  for  the  redemption  of  the  bonds  by  annual 
drawings  at  par.  These  bonds  are  hereinafter  referred 
to  as  bonds  of  Series  (A). 

(B)  Bonds  for  a  further  amount  of  38  milliard  gold 
marks  (£1,900,000,000).  These  bonds  shall  be  created 
and  delivered  at  the  lat/cst  on  November  1,  1921.  There 
shall  be  an  annual  payment  from  funds  to  be  provided 
by  Germany  as  prescribed  in  this  agreement  in  each  year 
from  November  1,  1921,  equal  in  amount  to  6  per  cent 
of  the  nominal  value  of  the  issued  bonds,  out  of  which 


APPENDIX  OF  DOCUMENTS  223 

there  shall  be  paid  interest  at  5  per  cent  per  annum, 
payable  half-yearly  on  the  bonds  outstanding  at  any 
time  and  the  bahince  to  sinking  fund  for  the  redemption 
of  the  bonds  by  annual  drawings  at  par.  These  bonds  are 
hereinafter  referred  to  as  bonds  of  Series  {B). 

(C)  Bonds  for  82  milliards  of  gold  marks  (£4,100,- 
000,000),  subject  to  such  subsequent  adjustment  by 
creation  or  cancellation  of  bonds  as  may  be  required 
under  Paragraph  (1).  These  bonds  shall  be  created  and 
delivered  to  the  Reparation  Commission,  without  coupons 
attached,  at  latest  on  November  1,  1921;  they  shall  be 
issued  by  the  Commission  as  and  when  it  is  satisfied  that 
the  payments  which  Germany  undertakes  to  make  in 
pursuance  of  this  agreement  are  sufficient  to  provide 
for  the  payment  of  interest  and  sinking  fund  on  such 
bonds.  There  shall  be  an  annual  payment  from  funds  to 
be  provided  by  Germany  as  prescribed  in  this  agreement 
in  each  year  from  the  date  of  issue  by  the  Reparation 
Commission  equal  in  amount  to  6  per  cent  of  the  nominal 
value  of  the  issued  bonds,  out  of  which  shall  be  paid 
interest  at  5  per  cent  per  annum,  payable  half-yearly 
on  the  bonds  outstanding  at  any  time,  and  the  balance 
to  sinking  fund  for  the  redemption  of  the  bonds  by 
armual  drawings  at  par.  The  German  Government  shall 
supply  to  the  Commission  coupons  for  such  bonds  as  and 
when  issued  by  the  Commission.  These  bonds  are  here- 
inafter referred  to  as  bonds  of  Series  (C). 

3.  The  bonds  provided  for  in  Article  2  shall  be  signed 
German  Government  bearer  bonds,  in  such  form  and  in 
such  denominations  as  the  Reparation  Commission  shall 
prescribe  for  the  purpose  of  making  them  marketable, 
and  shall  be  free  of  all  German  taxes  and  charges  of 
every  description  present  or  future. 

Subject  to  the  provisions  of  Articles  248  and  251  of 


224  A  REVISION   OF   THE   TREATY 

the  Treaty  of  Versailles  these  bonds  shall  be  secured  on 
the  whole  of  the  assets  and  revenues  of  the  German  Em- 
pire and  the  German  States,  and  in  particular  on  the 
specific  assets  and  revenues  specified  in  Article  7  of  the 
agreement.  The  service  of  the  bonds  of  Series  (A), 
{B)f  and  (C)  shall  be  a  first,  second,  and  third  charge 
respectively  on  the  said  assets  and  revenues  and  shall  be 
met  by  the  payments  to  be  made  by  Germany  under  this 
Schedule. 

4,  Germany  shall  pay  in  each  year  until  the  redemp- 
tion of  the  bonds  provided  for  in  Article  2  by  means  of 
the  sinking  funds  attached  thereto — 

(1)  A  sum  of  two  milliard  gold  marks  (£100,000,000). 

(2)  (a)  A  sum  equivalent  to  25  per  cent  of  the  value 

of  her  exports  in  each  period  of  12  months 
starting  from  May  1,  1921,  a^  determined  by 
the  Commission ;  or 
(&)  Alternatively  an  equivalent  amount  as  fixed 
in  accordance  with  any  other  index  proposed 
by  Germany  and  accepted  by  the  Commission. 

(3)  A  further  sum  equivalent  to  1  per  cent  of  the 

value  of  her  exports  as  above  defined,  or  alter- 
natively an  equivalent  amount  fixed  as  pro- 
vided in  (&)  above. 

Provided  always  that  when  Germany  shall  have  dis- 
charged all  her  obligations  under  this  Schedule,  other 
than  her  liability  in  respect  of  outstanding  bonds,  the 
amount  to  be  paid  in  each  year  under  this  paragraph 
shall  be  reduced  to  the  amount  required  in  that  year  to 
meet  the  interest  and  sinking  fund  on  the  bonds  then 
outstanding. 

Subject  to  the  provisions  of  Article  5,  the  payments 


APPENDIX  OF  DOCUMENTS  225 

to  be  made  in  respect  of  Paragraph  (1)  above  shall  be 
made  quarterly  before  the  end  of  each  quarter,  i.e.  be- 
fore January  15,  April  15,  July  15,  and  October  15  each 
year,  and  the  payments  in  respect  of  Paragraphs  (2) 
and  (3)  above  shall  be  made  quarterly,  November  15, 
February  15,  May  15,  August  15,  and  calculated  on  the 
basis  of  the  exports  in  the  last  quarter  but  one  preced- 
ing that  quarter,  the  first  payment  to  be  made  November 
15,  1921. 

5.  Germany  will  pay  within  25  days  from  this  notifi- 
cation one  milliard  gold  marks  (£50,000,000)  in  gold  or 
approved  foreign  bills  or  in  drafts  at  three  months  on 
the  German  Treasury,  endorsed  by  approved  German 
banks  and  payable  in  London,  Paris,  New  York,  or  any 
other  place  designated  by  the  Reparation  Commission. 
These  payments  will  be  treated  as  the  first  two  quarterly 
instalments  of  the  payments  provided  for  in  compliance 
with  Article  4  (1), 

6.  The  Commission  will  within  25  days  from  this 
notification,  in  accordance  with  Paragraph  12  (d),  An- 
nex II.  of  the  Treaty  as  amended,  establish  the  special 
Sub-Commission,  to  be  called  the  Committee  of  Guar- 
antees. The  Committee  of  Guarantees  will  consist  of 
representatives  of  the  Allied  Powers  now  represented  on 
the  Reparation  Commission,  including  a  representative 
of  the  United  States  of  America,  in  the  event  of  that 
Government  desiring  to  make  the  appointment. 

The  Committee  shall  co-opt  not  more  than  three 
representatives  of  nationals  of  other  Powers  whenever  it 
shall  appear  to  the  Commission  that  a  sufficient  portion 
of  the  bonds  to  be  issued  under  this  agreement  is  held 
by  nationals  of  such  Powers  to  justify  their  representa- 
tion on  the  Committee  of  Guarantees. 

7.  The  Committee  of  Guarantees  is  charged  with  the 


226  A  EEVISION"  OF  THE   TREATY 

duty  of  securing  the  application  of  Articles  241  and 
248  of  the  Treaty  of  Versailles. 

It  shall  supervise  the  application  to  the  service  of  the 
bonds  provided  for  in  Article  2  of  the  funds  assigned 
as  security  for  the  payments  to  be  made  by  Germany 
under  Paragraph  4.  The  funds  to  be  so  assigned  shall 
be— 

(a)  The  proceeds  of  all  German  maritime  and  land 

customs  and  duties,  and  in  particular  the  pro- 
ceeds of  all  import  and  export  duties. 

(b)  The  proceeds  of  the  levy  of  25  per  cent  on  the 

value  of  all  exports  from  Germany,  except  those 
exports  upon  which  a  levy  of  not  less  than  25 
per  cent  is  applied  under  the  legislation  re- 
ferred to  in  Article  9. 

(c)  The  proceeds  of  such  direct  or  indirect  taxes  or 

any  other  funds  as  may  be  proposed  by  the 
German  Government  and  accepted  by  the  Com- 
mittee of  Guarantees  in  addition  to  or  in  sub- 
stitution for  the  funds  specified  in  (a)  or  (&) 
above. 

The  assigned  funds  shall  be  paid  to  accounts  to  be 
opened  in  the  name  of  the  Committee  and  supervised 
by  it,  in  gold  or  in  foreign  currency  approved  by  the 
Committee.  The  equivalent  of  the  25  per  cent  levy 
referred  to  in  Paragraph  (h)  shall  be  paid  in  German 
currency  by  the  German  Government  to  the  exporter. 

The  German  Government  shall  notify  to  the  Com- 
mittee of  Guarantees  any  proposed  action  which  may 
tend  to  diminish  the  proceeds  of  any  of  the  assigned 
funds,  and  shall,  if  the  Committee  demand  it,  substitute 
some  other  approved  funds. 


APPENDIX  OF   DOCUMENTS  227 

The  Committee  of  Guarantees  shall  be  charged  fur- 
ther with  the  duty  of  conducting  on  behalf  of  the  Com- 
mission the  examination  provided  for  in  Paragraph 
12  (6)  of  Annex  2  to  Part  VIII.  of  the  Treaty  of  Ver- 
sailles, and  of  verifying  on  behalf  of  the  said  Commis- 
sion, and  if  necessary  of  correcting,  the  amount  declared 
by  the  German  Government  as  the  value  of  German 
exports  for  the  purpose  of  the  calculation  of  the  sum 
payable  in  each  year  under  Article  4  (2)  and  the 
amounts  of  the  funds  assigned  under  this  Article  to  the 
service  of  the  bonds.  The  Committee  shall  be  entitled 
to  take  such  measures  as  it  may  deem  necessary  for  the 
proper  discharge  of  its  duties. 

The  Committee  of  Guarantees  is  not  authorised  to 
interfere  in  German  administration. 

8.  Germany  shall  on  demand,  subject  to  the  prior 
approval  of  the  Commission,  provide  such  material  and 
labour  as  any  of  the  Allied  Powers  may  require  towards 
the  restoration  of  the  devastated  areas  of  that  Power, 
or  to  enable  any  Allied  Power  to  proceed  with  the 
restoration  or  development  of  its  industrial  or  economic 
life.  The  value  of  such  material  and  labour  shall  be 
determined  by  a  valuer  appointed  by  Germany  and  a 
valuer  appointed  by  the  Power  concerned,  and,  in  de- 
fault of  agreement,  by  a  referee  nominated  by  the  Com- 
mission. This  provision  as  to  valuation  does  not  applj' 
to  deliveries  under  Annexes  III.,  IV.,  V.,  and  VI.  to 
Part  VIII.  of  the  Treaty. 

9.  Germany  shall  take  every  necessary  measure  of 
legislative  and  administrative  action  to  facilitate  the 
operation  of  the  German  Reparation  (Recovery)  Act, 
1921,  in  force  in  the  United  Kingdom,  and  of  any  similar 
legislation  enacted  by  any  Allied  Power,  so  long  as  such 
legislation  remains  in  force.    Payments  effected  by  the 


228  A  EEVISION"   OF  THE  TREATY 

operation  of  such  legislation  shall  be  credited  to  Ger- 
many on  account  of  the  payment  to  be  made  by  her 
under  Article  4  (2),  The  equivalent  in  German  cur- 
rency shall  be  paid  by  the  German  Government  to  the 
exporter. 

10.  Payment  for  all  services  rendered,  all  deliveries  in 
kind,  and  all  receipts  under  Article  9  shall  be  made  to 
the  Reparation  Commission  by  the  Allied  Power  receiv- 
ing the  same  in  cash  or  current  coupons  within  one 
month  of  the  receipt  thereof,  and  shall  be  credited  to 
Germany  on  account  of  the  payments  to  be  made  by  her 
Tinder  Article  4. 

11.  The  sum  payable  under  Article  4  (3)  and  the 
surplus  receipts  by  the  Commission  under  Article  4  (1) 
and  (2)  in  each  year,  not  required  for  the  payment  of 
interest  and  sinking  fund  on  bonds  outstanding  in  that 
year,  shall  be  accumulated  and  applied  so  far  as  they 
will  extend,  at  such  times  as  the  Commission  may  think 
fit,  by  the  Commission  in  paying  simple  interest  not 
exceeding  2^  per  cent  per  annum  from  May  1,  1921, 
to  May  1,  1926,  and  thereafter  at  a  rate  not  exceeding 
5  per  cent  on  the  balance  of  the  debt  not  covered  by  tlie 
bonds  then  issued.  No  interest  thereon  shall  be  payable 
otherwise. 

12.  The  present  Schedule  does  not  modify  the  pro- 
visions securing  the  execution  of  the  Treaty  of  Versailles, 
which  are  applicable  to  the  stipulations  of  the  present 
Schedule. 

VIII.    The  Wiesbaden  Agreement,  October  6,  1921 

This  Agreement,  signed  by  M.  Loucheur  and  Herr 
Rathenau  at  Wiesbaden  on  O^itober  6,  1921,  is  a  lengthy 
document,  consisting  of  a  Protocol,  Memorandum,  and 
Annex.    The  effective  clauses  are  to  be  found  mainly  in 


APPENDIX  OF  DOCUMENTS  229 

the  Annex.  The  full  text  has  been  published  in  a  British 
Wliite  Paper  [Cnul.  1547].  This  White  Paper  also  con- 
tains (1)  an  explanatory  Memorandum,  (2)  the  De- 
cision of  the  Reparation  Commission,  and  (3)  a  Report 
from  Sir  John  Bradbury  to  the  British  Treasury.  Ex- 
tracts from  these  three  documents  are  given  below. 


1.   Explanatory  Memorandum 

In  order  to  understand  the  arrangements  proposed  by 
the  Wiesbaden  Agreement,  it  is  necessary-  to  bear  in 
mind  certain  provisions  of  the  Treaty  of  Versailles,  the 
application  of  which  is  affected  by  it. 

The  Treaty  itself  provides  in  the  Reparation  Chap- 
ter, Part  VIII.,  and  in  some  of  its  Annexes,  for  the  par- 
tial liquidation  of  Germany's  reparation  indebtedness 
by  deliveries  in  kind.  The  important  passages  in  this 
connection  are  Paragraph  19  of  Annex  II.  and  Annex 
IV.,  which  together  make  extensive  provision  for  tlie  de- 
livery, through  the  Reparation  Commission,  to  the  Al- 
lied and  Associated  Powers  of  machinery,  equipment, 
tools,  reconstruction  material,  and,  in  general,  all  such 
material  and  labour  as  is  necessary  to  enable  any  Allied 
Power  to  proceed  with  the  restoration  or  development  of 
its  industrial  or  economic  life. 

Germany's  obligation  being  stated  in  terms  of  gold 
and  not  in  terms  of  commodities,  provision  has  neces- 
sarily been  made  in  all  cases  for  crediting  Germany, 
from  time  to  time,  with  the  fair  value,  as  a.ssessed  by 
the  Reparation  Commission,  of  such  deliveries.  More- 
over, since  the  proportions  received  by  the  respective 
Powers  in  kind  need  not  necessarily  correspond  exactly 
with  their  respective  shares  in  Germany's  reparation 
payments,    as    determined    by    Inter-Allied    agreement, 


230  A  EEVISION  OF  THE  TEEATY 

provision  is  further  necessarily  made  in  the  Treaty  to 
render  each  Power  accountable  not  only  to  Germany, 
but  to  the  Reparation  Commission,  for  the  value  of 
these  deliveries.  Thus,  on  the  one  hand,  the  Treaty 
stipulates  as  between  the  Allies  and  Germany  that  the 
value  of  services  under  the  Annexes  shall  be  credited 
towards  the  liquidation  of  Germany's  general  obliga- 
tion, and  the  Schedule  of  Payments  assigns  the  value 
of  Aimex  deliveries  to  the  service  of  the  bonds  handed 
over  by  Germany  as  security  for  her  debt.  On  the  other 
hand,  the  Treaty  provides  that  for  the  purpose  of  equita- 
ble distribution  as  between  the  Allies,  the  value  of  An- 
nex deliveries  shall  be  reckoned  in  the  same  manner  as 
cash  payments  effected  in  the  year,  and  the  Schedule  of 
Payments  stipulates  that  the  value  of  the  deliveries 
received  by  each  Power  shall,  within  one  month  of  the 
date  of  delivery,  be  paid  over  to  the  Reparation  Com- 
mission, either  in  cash  or  in  current  coupons. 

Further,  the  Treaty  imposes  upon  the  Reparation 
Commission  not  only  the  duty  of  fixing  prices,  but  also 
of  determining  the  capacity  of  Germany  to  deliver 
goods  demanded  by  any  of  the  Allies,  and,  by  implica- 
tion, of  deciding  between  the  competing  demands  which 
are  made  upon  that  capacity  by  the  Allies  themselves. 

The  Wiesbaden  Agreement  provides  for  the  delivery 

by  a  German  company^  to  French  "sinistres"  of  "all 

plant  and  materials  compatible  with  the  productive  ca- 

^  The  ar.rangement  under  which  a  German  private  company  is 
to  be  created  to  deal  directly  with  the  orders  without  the  inter- 
vention of  the  Frencli  and  German  Governments  is  intended  to 
obviate  the  delays  which  experience  has  shown  to  be  inseparable 
from  the  employment  of  the  present  machinery.  It  does  not 
appear  to  have  any  important  bearing  on  the  general  financial 
situation,  since  the  deliveries  will  clearly  have  to  be  financed  by 
the  German  Government  and  will  ultimately  be  paid  for  by  means 
of  a  reparation  credit  in  account  with  the  German  Government. 


APPENDIX  OF  DOCUMENTS  231 

pacity  of  Geraiany,  her  supply  of  raw  materials  and  her 
dometitie  requiretucnts,"  that  is  to  say,  of  the  articles 
and  materials  which  can  be  demanded  under  Annex  IV. 
and  Paragraph  19  of  Annex  II.,  which  arc,  by  the  terms 
of  the  Agreement,  in  so  far  as  France  is  concerned,  vir- 
tually suspended,  the  obligations  of  Germany  to  deliver 
to  France  under  the  other  Annexes  remaining  unaf- 
fected. 

Any  question  as  to  the  capacity  of  Germany  to  satisfy 
the  requirement  of  France,  and  all  questions  of  price, 
are  to  be  settled  by  a  Commission  of  three  members, 
one  French  and  one  German,  and  a  third  .selected  by 
common  agreement  or  nominated  by  the  Swiss  Presi- 
dent. 

The  aggregate  value  of  the  deliveries  to  be  made 
under  the  Agreement,  and  of  the  deliveries  to  be  made 
under  Annexes  III.,  V.  and  VI.  (hereafter,  for  the  sake 
of  brevity,  called  the  "Annex  deliveries")  in  the  period 
expiring  on  the  1st  May  1926,  is  fixed  at  a  maximum 
of  7  milliard  gold  marks. 

In  regard  to  the  Annex  deliveries  the  Agreement  in 
no  way  modifies  the  Treaty  provisions  under  which  Ger- 
many is  credited  and  France  debited  forthwith  with  the 
value,  but  special  provisions,  which  arc  financially  the 
essential  part  of  the  Agreement,  are  made  for  bringing 
to  reparation  account  the  value  of  the  Agreement  de- 
liveries. These  special  provisions  are  designed  to  secure 
that  Germany  shall  only  be  credited  on  reparation  ac- 
count at  the  time  of  delivery  with  a  certain  proportion 
of  them,  and  that  deliveries  not  thus  accounted  for, 
which  maj'  be  called  "excess  deliveries,"  shall  be  liqui- 
dated over  a  period  of  years  beginning  at  the  earliest  on 
Ist  May  1926.    The  provisions  themselves  are  somewhat 


232  A  REVISION  OP   THE  TREATY 

intricate,  comprising,  as  they  do,  a  series  of  interacting 
limitations,  and  they  require  some  elucidation. 

(1)  In  no  case  is  credit  to  be  given  to  Germany  in 

any  one  year  for  Annex  and  Agreement  de- 
liveries together  to  an  amount  exceeding  one 
milliard  gold  marks. 

(2)  In  no  case  is  credit  to  be  given  to  Germany  in 

any  one  year  for  more  than  45  per  cent  of  the 
value  of  the  Agreement  deliveries  or  for  more 
than  35  per  cent  if  the  value  of  the  Agreement 
deliveries  exceeds  one  milliard  gold  marks. 

The  effect  of  the  above  is  to  prescribe  that  55  per 
cent  (or,  if  the  Agreement  operates  successfully,  65  per 
cent)  of  the  value  of  the  Agreement  deliveries  as  a  mini- 
mum will  be  the  object  of  deferred  payment  by  instal- 
ments. If  the  Agreement  deliveries  reached  really  high 
figures,  the  operation  of  the  milliard  limitation  would 
make  the  carry  forward  much  more  than  65  per  cent. 

The  excess  deliveries  are  to  be  liquidated  with  interest 
at  5  per  cent  per  annum  in  10  equal  annual  instalments 
as  from  1st  May  1926,  subject  to  certain  conditions : — 

(1)  France  shall  in  no  case  be  debited  in  one  year 

for  Agreement  deliveries  with  an  amount  which, 
when  added  to  the  value  of  her  Annex  deliveries 
in  that  year,  would  make  her  responsible  for 
more  than  her  share  (52  per  cent)  of  the  total 
reparation  payments  made  by  Germany  in  that 
year. 

(2)  Agreement    deliveries    continue    after    Ist    May 

1926,  with  the  same  provisions  for  deferred 
payment.  If  in  any  year  between  May  1926 
and  May  1936  the  amount  (not  exceeding  35 


APPENDIX   OF  DOCUMENTS  233 

or  45  per  cent)  of  the  value  of  that  year's 
Agreement  deliveries  to  be  creditcil  to  Ger- 
many, together  with  the  annual  instalment  to 
repay  the  debt  incurred  in  respect  of  the  period 
ending  1st  May  1[)2G,  exceeds  one  milliard,  the 
excess  is  to  be  carried  forward  from  year  to 
year  until  a  year  is  readied  in  which  no  such 
excess  is  created  by  the  payment.  But  in  no 
case  shall  the  amount  credited,  even  if  it  is  less 
than  one  milliard  gold  marks,  exceed  the  limit 
laid  down  by  the  preceding  condition. 

(3)  Any  balance  with  which  Germany  has  not  been 

credited  on  1st  May  1936  is  to  be  credited  to 
her  with  compound  interest  at  5  per  cent  in 
four  half-yearly  payments  on  30th  June  and 
31st  Decom])er  1936  and  30th  June  and  31st 
December  1937.  But,  again,  these  half-yearly 
payments  shall  not  be  made  if  the  eflFect  of 
making  thom  would  be  to  exceed  the  limit  laid 
down  in  Condition  1  above. 

(4)  Agreement  deliveries  continue  indefinitely  after 

1st  ]\Iay  1936,  with  power,  however,  to  Ger- 
many to  arrest  them  whenever  the  execution  of 
them  would  result  in  France  owing  more  than 
52  per  cent  of  Germany's  annual  reparation 
payment  in  respect  of  Annex  deliveries,  de- 
ferred payments  already  matured,  and  the  35 
or  45  per  cent  of  current  deliveries. 

From  the  above  it  is  to  be  noted  that,  while  there  is 
a  limitation  for  the  first  five  years  of  the  amount  of 
Agreement  deliveries  which  can  be  demanded,  there  is — 

(1)  No  point  at  which  the  right  of  France  to  demand 


234  A  KEVISION"  OP  THE  TEEATY 

these    special    deliveries    automatically    termi- 
nates. 

(2)  No  final  limitation  upon  the  value  of  the  deliv- 

eries which  can  be  demanded  by  France  during 
the  lifetime  of  the  Agreement. 

(3)  No    definitely    prescribed    period    within    which 

France's  debt  to   Germany  and  to  the  other 
partners  in  reparation  shall  be  liquidated. 


It  remains  necessary  to  draw  attention  to  one  sub- 
sidiary point  of  a  financial  character  under  the  Schedule 
of  Payments.  Part  of  Germany's  annual  reparation 
liability  consists  of  the  payment  of  26  per  cent  of  the 
value  of  German  exports  in  each  period  of  twelve 
months,  and  part  of  the  security  for  the  payment  con- 
sists of  the  proceeds  of  a  levy  of  25  per  cent  on  the  value 
of  all  German  exports.  The  French  Government  has 
undertaken  to  support  a  request,  to  be  submitted  by  the 
German  Government  to  the  Reparation  Commission,  for 
the  inclusion  in  the  exports  which  form  the  basis  of 
these  calculations  of  that  part  only  of  the  value  of  the 
deliveries  made  under  the  Agreement  which  is  credited 
to  Germany  and  debited  to  France  during  any  particu- 
lar year. 

If  it  can  be  assumed  that  any  part  of  the  special  de- 
liveries to  be  made  under  the  Agreement  would,  in  the 
absence  of  the  Agreement,  have  been  diverted  to  Ger- 
many's ordinary  external  trade,  then  the  concession 
desired  will  have  the  effect  of  diminishing  the  annual 
payments  made  by  Germany  for  the  benefit  of  the  Al- 
lies as  a  whole. 


APPENDIX   OF  DOCUMENTS  235 

2.  Decision  of  the  Etparation  Commission  on  October 
20,  1921,  after  considering  the  Franco-German 
Agreement  of  October  6,  1921 

The  French  Governnieut,  having  submitted  to  the 
Reparation  Conimis.sion  in  accordance  with  Paragraph  3 
of  the  Memorandum  thereto  attached  the  Agreement  be- 
tween the  representatives  of  the  French  and  German 
Governments  signed  at  Wiesbaden  on  tlic  Gth  instant,  the 
Commission  has  come  to  the  following  decision : — 

(1)  It  entirely  approves  the  general  principles  under- 

lying the  Agreement  whereby  special  arrange- 
ments arc  proposed  for  enabling  Germany  to 
liquidate  the  largest  possible  proportion  of  her 
reparation  obligations  in  the  form  of  goods  and 
services,  more  especially  with  a  view  to  the 
speedier  restoration  of  the  Devastated  Regions. 

(2)  At  the  same  time,  it  considers  that  the  Agree- 

ment involves  certain  departures  from  the  pro- 
visions of  Part  VIII.  of  the  Treaty  of  Versailles, 
notably  Article  237,  Paragraphs  12  and  19  of 
Annex  II.  and  Paragraph  5  of  Annex  IV. 

(3)  As  the  Connuission  has  no  power  to  authorise  such 

departures,  it  decides  to  refer  the  question  to 
the  Governments  represented  on  the  Commis- 
sion, with  a  copy  of  the  Memorandum  and  its 
Annex,  recommending  a  favourable  examina- 
tion of  them. 

(4)  The  (.'ommission  recommends  that  reasonable  fa- 

cilities for  deferred  payment  in  respect  of  the 
exceptional  volume  which,  if  the  arrangements 
are  successful,  the  deliveries  in  kind  to  France 
are  likely  to  assume  during  the  next  few  years, 
should  be  accorded  to  France,  subject  to  any 


236  A  REVISION  OF   THE   TREATY 

safeguards  which  the  Allied  Governments  may 
regard  as  necessary  to  protect  their  respective 
interests. 

3.    Concluding    Eecotnmendations    of    Sir   John    Brad- 
bury's Report  to  the  British  Government  {October 
26,  1921) 
The  safeguards  which  are  envisaged  as  necessary  by 
my  Italian  and  Belgian  colleagues  on  the  Reparation 
Commission  and  myself,  and  for  which  we  presume  that 
our    respective    Governments    will    desire    to    stipulate 
are — 

(1)  That  a  limit  of  time  should  be  laid  down  after 

the  expiration  of  which  no  new  deferment  of 
debit  should  be  permitted  and  the  liquidation 
of  the  existing  deferred  debits  should  commence 
to  be  made  by  regular  annual  instalments. 

The  precise  length  of  this  period  should  be  determined 
upon  an  estimate  of  the  time  necessary  to  carry  out  the 
main  work  of  reconstruction,  regard  being  had  to  the 
time  required  by  Germany  to  effect  the  necessary  sup- 
plies. In  view  of  the  delays  which  are  inevitable  in 
regard  to  operations  of  the  magnitude  of  those  contem- 
plated, the  prescribed  period  might  be  reasonably  some- 
what longer  than  the  four  and  a  half  years'  initial 
period  under  the  agreement,  but  it  should  not  exceed 
seven  years. 

(2)  That  in  no  circumstances  should  the  aggregate 

amount  for  which  debit  against  France  for  the 
time  being  stands  deferred  be  allowed  to  ex- 
ceed a  prescribed  amount,  say,  4  milliard  gold 
marks. 

(3)  That  a  provision  should  be  inserted  for  the  pay- 

ment by  France  to  the  general  reparation  ac- 


APPENDIX   OF   DOCUMENTS  237 

count  from  time  to  time  (within  the  limits  of 
tl)e  deferreti  ciel)itH  for  the  time  being  outstand- 
ing) of  any  amounts  whieh  may  be  necessary 
to  seeure  that  the  other  Allies  .shall  receive  their 
proper  proportions  of  the  amounts  due  from 
Germany  under  the  Schedule  of  Payments. 

Subject  to  the  introduction  of  these  safeguards,  to 
which  it  would  not  appear  that  legitimate  exception 
could  be  taken,  the  arrangements  contemplated  by  the 
agreement  may  be  expected  to  accelerate  the  solution  of 
tiie  Reparation  problem  on  practical  lines  in  a  manner 
advantageous  to  France  without  prejudicing  the  inter- 
ests of  other  Powers,  and  it  is  upon  this  ground  that 
the  Reparation  Commission  has  unanimously  recom- 
mended them  for  favourable  examination  by  the  Allied 
Governments. 

If  the  Allied  Governments  approve  the  general 
scheme,  subject  to  whatever  safeguards  they  may  decide 
to  be  necessary,  there  will  remain  certain  subsidiary 
points  for  the  Reparation  Commission  to  consider — 
amongst  other: — 

(Ij  The  proposed  omission  of  the  excess  deliveries 
from  the  index  figure  determining  the  annual 
liability  under  the  Schedule  of  Payments,  until 
such  time  as  these  deliveries  are  finally  brought 
to  account  for  reparation  purposes, 

(2)  The  special  arrangements  for  substitution  in  re- 

spect of  articles  of  which  France  is  entitled  to 
restitution  by  identity,  involving  in  certain 
cases  money  payments ;  and 

(3)  The  special  arrangements  in  regard  to  the  delivery 

of  coal  and  the  prices  to  be  credited  and  deb- 
ited, which  in  several  particulars  aifect  the 
interest  of  other  Powers. 


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APPENDIX  OF  DOCUMENTS  239 


(B)  Advances  by  the  British  Government  to  Other 
Governments  {as  on  March  31,  1921) 

Allied  Governmenta  ' — 

France    £557,039,507     6  8 

Kussia     561,402,234  18  5 

Italy    470,850,000     0  0 

Belgiiuu    103,421, 1!»2     8  9 

Serbia   22,247,376  12  5 

Monttingro    204,755  19  9 

Rumania     21,393,002     2  8 

Portugal     18,575,000    0  0 

Greece 22,577,978     9  7 

Belgian  Congo    3,550,300    0  0 

£1,787,262,007  18     3 

Loans  for  Relief — 

Austria     £8,605,134     9  9 

Rumania     1,294,720     0  8 

Serb-Croat-Siovene 

Kingdom     1,839,167     3  7 

Poland     4,137,040  10  1 

Czechoslovakia    417,392     3  3 

Esthonia     241,681  14  2 

Lithuania 16,811  12  4 

Latvia 20,169     1  10 

Hungary    79,997  15  10 

Armenia    77,613  17  2 

Inter-Allied  Commission 

on  the  Danube 6,868  17  6 

16,736,603     6     2 

Other  Loans  ( Stores,  etc. )  — 

Czechoslovakia    £2,000,000     0     0 

Armenia    829,634     9     3 

2,829,634     9     3 

Total    £1,806,828,245  13     8 


'  These  accounts  include  Interest,  except  In  the  case  of  Belgium  and 
Serbia,  from  whom  interest  has  not  boon  charged,  and  in  the  case  of 
Russia,  where  no  interest  has  been  entered  up  since  January  1918. 


INDEX 


Allied  debts,  170  f.,  183,  193  f., 

238 
Armistice      negotiations,      145, 

148  f. 
Army  of    Occupation,   expenses 

of.  84  «.,  133  f.,  140,  191 
Austria,  130,  190,  191 

Balfour,  A.  J.,  14&  n. 

Barucb,  72  m.,   106  n.,   153,   155, 

56,  159,  160  n. 
Belgian  priority,  135-6,  139-40, 

190,  204 
Reparation  claims,  123-4,  197 
Boulogne  Conference,  19 
Boyden,  112,   130 
Bradbury,    Sir    John,    93,    95, 

128  «,.  129,  216 
Brenier,  109,  110,  118  n. 
Briand,  24,  25,  27,  41,  69,  114 
British  Reparation  Claims,  124, 

211 
Brockdorfi-Rantzau,  29 
Brussels  Conference   (Experts), 

22-3 
Brussels  Conference  (League  of 

Nations),  86 
Brussels  Conference  (Premiers), 

19 
Bulgaria,  130,  190 

Clemenceau,  84  n.,  108,  149,  150 
Coal,  44  f.,  75,  98 
Cunliffe,  Lord,  72,  156 
Curzon,  Lord,  57  n. 

D'Abernon,  Lord,  31 
Decisions  of  London,  95 
Disarmament  of  Germany,  16-19 


240 


Dominion  Prime  Ministers'  Con- 
ference,   139 
Doumer,   111,   141 
Dubois,  110,  Hon.,  128  n. 
Dulles,  John  Foster,  156-7 


East  Priissia  (plebiscite),  11 

Economic  Consequences  of  the 
Peace,  5,  39,  45,  51,  55  n., 
71,  72,  74  n.,  107,  108,  114, 
119,  124,  126  m.,  127  n.,  144, 
146  n.,  1G6,  173 

Elsas,  Dr.  Moritz,  88-9,  92  n. 

Exports,  German,  79  f.,  99, 
165  f. 

Financial  Agreement  of  Paris 
(Aug.  1921),  135,  141  f. 

Foch,  Marshal,  31,  33,  57,  148  n. 

Forgeot,    70  n. 

Fournier-Sarlov&ze,    116  w. 

Frankfurt,  Occupation  of,  15, 
57 

French  Reparation  Claim,  107  f., 
117  f.,  210 

George,  Lloyd,  1,  17,  18,  21,  27, 
30,  33,  41,  84  m.,  121,  138  n., 
139,  150,  155,  179,  198 

German  Budget,  81  f. 

German  Counter-proposal 
(March  1921),  28-30 

German  Counter-proposal  (April 
1921),   36  f.,   215  f. 

German  individual  income,  86  f. 

German  property  in  United 
States,  77,  143 

Gladstone,  6 


INDEX 


241 


Guarantees,  Committee  of,  GS  t., 
225  i. 

Haig,  Sir   Uouglaa,   148  n. 
Harding,  fresidtiit,  171 
Jdeiehen,  Ur.   Arthur,  87 
Hellleric-h,  88,  'JO 
Uvstory  oj  the  Peace  Conference 

of     Pans,     1'17  n.,     152  n., 

lUOn. 
House,  Col.,   148  n. 
Hughes,   W.  M.,   156 
Hungary,    102 
Hymans,   150 
Hylhe  Conference,  18 


Mercantile  Marine  of  Germany, 

16,   137 
'•  Mci  meix,"   148  n.,  149  n. 
Miileraud,  18,  20 

Mewbpaper    opinion,    7 
Nitti,    18 

Occupation,  Army  of,  84  n.,  133, 

140 
Occupation    of    Germany,     188, 

214,  219 
Occupation  of  Germany,  legality 

of,  32,  41,  57  f. 
Orlando,   150 


Invasion  of  Germany,  31,  32,  36 
Italian  Reparation  Claims,  127, 

211 
Italy,  190 

Kaiser,    trial    of,    14 
Kapp,  "  Putsch,"  15 
Klotz,    24,    72,    109,    111,    147, 
151  f. 

Lamont,    J.     W.,     106  n.,     161, 

162  n. 
Lansburgh,  Dr.  Albert,  87 
J.aw,  Bonar,  150 
League  of  Nations,  12,  61,  188 
Leipzig  trials,   15 
L^vy,  Raphael-Georges,  118  n. 
Leygues,  21,  24 
Lignite,  55 

London  Conference  I.,  28,  34 
London  Conference  II.,  40 
London  Settlement,  64  f.,  72,  7.3, 

81,  S4n.,  130.  188  f.,  221 
London   Ultimatum   I.,   30,   35, 

213 
London  Ultimatum  IT.,   16,   19, 

31  n..  42.  44,  57.  210  f. 
Loueheur,  31.  92,  05,  109,   110, 

112n..   117.   120 
Loueheur- Rathenau  Agreement; 

vide  Wiesbaden  Agreement 

Mark  Exchange,  81,  100  f. 


Taris  decisions,   18,  26,  32,  34, 

39,  40,  57,  207 
Payi^ent  in  kind,  97  f.,  168 
Pensions,   125,   146  f.,   185 
Poincar^,  24,  108,  128,  129 
Poland,   192  f. 
Poland's  coal,  52 
Private  opinion,  7,  8 

Rathenau,  02,  05 

Reparation  Claims,  126  f.,  210  f. 

Reparation  and  International 
Trade,  163  f. 

Reparation  Bill,  39,  106  f.,  185 

Reparation  Bonds,  58  f.,  101, 
207,  221 

Reparation  Commission,  21,  32, 
35,  45,  47.  59.  61,  66  n..  67, 
68,  73,  93.  106,  110,  118, 
126.  156.  221  f.,  2.35 

Reparation  Commi<!s5on.  Assess- 
ment of.  27.  127  f.,  219 

Reparation,  Estimates  of,  39,  72 

Reparation  Receipts,  division 
of.  1.38  f.,  203 

Restitution.  16.  149,  150 

Revision  of  Treaty,  185  f. 

Ruhr.  Occupation  of,  36,  41,  58, 
204 

Ruhr  riots,  15 

San  Romo  Conference,  15,  18 
Sanctions,  32,  36,  57  n. 


242 


INDEX 


Schlesvig   (plebiscite),  11 
Simons,  28,  29,  32,  38  ».,  213 
(Smuts,   General,    160 
tSonino,  150 
Spa  Coal  Agreement,  45  f.,  102, 

133,    136,   205 
Spa  Conference,  18,  19,  45,  138, 

203 
Sumner,  Lord,  156 

Tardieu,  24,  27,  60,  72,  106  n., 
107  n.,  108  TO.,  114  n.,  117, 
120  n.,  121 «.,  138,  147, 
148 «.,  149  n.,  150 «.,  151, 
153 

The  Times,  18,  20,  22,  27,  32, 
55  n.,    100,    110,    117  «. 


United  States  36,  38,  78  n.,  143 
United  States  and  Inter-Allied 

Debts,  170,  183,  194  f .,  238, 
United  States,  Treaty  rights  of, 

towards   Germany,    77,    78, 

130,   140,   i42 
Upper  Silesia,  11,  30,  32,  39,  52, 

54 

Westphalian  riots,  15 

Wierzlicki,  53 

Wiesbaden  Agreement,  76,  92  f ., 

187,  211  f. 
Wilson,  President,  146  f.,  151  f ., 

157,  160,  161-162 

Young,  Allyn,  5  n. 


BY  THE  SAME  AUTHOR 

THE  ECONOMIC  CONSEQUENCES  OF 
THE  PEACE 

First  published  in  London,  December,  1919,  and  in  New  York, 
January,  I'J^O.  Afterwards  reprinted  in  French,  Oerman,  Italian, 
Spanish,  Dutch,  Flemish,  Danish,  Swedish,  Rumanian,  Russian, 
and  Chinese,  these  editions,  of  which  the  chief  are  mentionedl 
below,  amounting  in  all  to  lJiO,000  copies. 

1.  The  Economic  Consequences  of  tile  Peace. 

London:  Macmillan  and  Co.,  1919. 

2.  The  Economic  Consequences  op  the  Peace. 

London:  Labour  Research  Department,  1920. 

[Out  of  print.] 

3.  The  Economic  Consequences  of  the  Peace. 

New  York :  Harcourt,  Brace  and  Co.     1920.     $2.50. 

4.  Les  Consequences  economiques  de  la  Paix.    Tra- 

duit  de  I'Anglais  par  Paul  Franck. 

Paris:  Editions  de  la  Nouvelle  Kevue  Frangaise.    1920. 

5.  Die  wirthschaftlichen  Folqen  des  Friedensver- 

tragens.     Ubersetzt    von    M,    J.    Bonn    und    C. 
Brinkmann. 

MUnclien:  Duncker  und  Humblot.     1920. 

G.   De  economische  Gevolgen  van  den  Vrede.     Met 
een  Inleiding  van  Mr.  G.  Visseri©. 

Amsterdam:  Uitgevers-Maatschappij  Elsevier.     1920. 

7.  Le  Conseguenze  economiche  della  Pace.     Tradu- 

zione  di  Vincenzo  Tasco.    Prefazione  di  Vincenzo 

GlUFFRIDA. 

Milano:  Fratelli  Treves.     1920. 

8.  Fredens    Ekonomiska    Foljder.     Oversattning   av 

Evert  Berggren. 

Stockholm:  Albert  Bonnier.     1920. 


[2] 

9.  Las  Consecuencias  economicas  de  la  Paz.     Tra- 

duecion  por  Juan  Uf^A. 
Madrid:  Calpe.     1920. 

10.  De    ECONOMiscHE    Gevolgen    van    den    Vrede. 

Vlaamsche  Uitgave  vertaing  van  G.  W. 
Brussel:   Uitgeverij  0ns  Vaderland.     1920. 

11.  TJrtmarile  economice  a  le  Pach. 

Bucaresti:  Editxna  Viata  Romineasca.     1920. 

12.  Ekonomitjeskija  Posledstvija  Mira. 

Stockholm:  W.  TuUbergs  Boktryckeri.     1921. 

PKESS  NOTICES 
British 

THE  NATION,  Dec.  13,  1019.— "This  is  the  first  heavy  shot  that 
has  been  fired  in  the  war  which  the  intellectuals  opened  on  the 
statesmen  the  moment  they  realized  what  a  piece  of  work  the 
Treaty  was." 

WESTMINSTER  GAZETTE,  Dec.  20,  1919.— "Mr.  Keynes  has 
produced  a  smashing  and  unanswerable  indictment  of  the  economic 
settlement.  .  .  .  It  is  too  much  to  hope  that  the  arbiters  of  our 
destinies  will  read  it  and  perhaps  learn  wisdom,  but  it  sliould  do 
much  good  in  informing  a  wide  section  of  that  public  which  will 
in  its  turn  become  the  arbiters  of  theirs." 

SUNDAY  CHRONICLE,  Dec.  21,  1910.— "No  criticism  of  tlie 
Peace  which  omits,  as  Mr.  Keynes  seems  to  me  by  implication  to 
omit,  the  aspect  of  it  not  as  a  treaty,  but  as  a  sentence,  has  any 
right  to  be  heard  by  the  European  Allied  peoples." 

THE  SPECTATOR,  Dec.  20,  1919.— 'The  world  is  not  governed 
by  economical  forces  alone,  and  we  do  not  blame  the  statesmen  at 
Paris  for  declining  to  be  guided  by  Mr.  Keynes  if  he  gave  them 
such  political  advice  as  he  sets  forth  in  his  book." 

THE  TIMES,  .Tan.  5,  1920— "Mr.  Keynes  has  written  an  ex- 
tremely 'clever'  book  on  the  I'eace  Conference  and  its  economic  con- 
sequences. ...  As  a  whole,  his  cry  against  the  Peace  seems  to  us 
the  cry  of  an  academic  mind,  a<'custonied  to  deal  with  the  abstrac- 


[3] 

tions  of  that  largely  motaphysienl  exercise  known  as  'political 
economy,'  in  revolt  aj^'aiiist  the  facts  and  forces  of  actual  political 
existence.  .  .  .  Indeed,  one  of  tiie  most  striking  features  of  Mr. 
Keynes's  book  is  the  political  inexperience,  not  to  say  ingenuous- 
ness, wliicli  it  reveals.  .  .  .  He  believes  it  would  have  been  wise 
and  just  to  demand  from  (icrinany  pa,\Tnent  of  £2,000,000,000  'in 
linal  siilhment  of  all  claims  without  further  examination  of  par- 
ticulars.' " 

THE  ATHEN.TJDM,  Jan.  23,  1020.— "This  book  is  a  perfectly 
well  ei|uii>p(d  arsenal  of  facts  and  arguments,  to  which  every  one 
will  resort  for  3ears  to  come  who  wishes  to  strike  a  blow  against 
the  forces  of  prejudice,  delusion,  and  stupidity.  It  is  not  easy  to 
make  large  numbers  of  men  reasonable  by  a  book,  yet  there  are  no 
limits  to  which,  without  undue  extravagance,  we  may  not  hope 
that  the  influence  of  this  book  may  not  extend.  Never  was  the 
case  for  reasonableness  more  powerfully  put.  It  is  enforced  with 
extraordinary  art.  What  might  easily  have  been  a  difiicult  trea- 
tise, semi-ollicial  or  academic,  proves  to  be  as  fascinating  as  a 
good  novel." 

FORTSianThY  REVIEW,  March  1,  1920.— "Mr.  Keynes's  book 
ha.s  now  been  published  three  months,  and  no  sort  of  official  reply 
to  it  has  been  issued.  Nothing  but  the  angry  cries  of  bureaucrats 
luive  been  heard.  No  such  crushing  indictment  of  a  great  act  of 
international  policy,  no  such  revelation  of  the  futility  of  diplomats 
has  even  been  made." 

TIMES    LITERARY    SUPPLEMENT,    April    29,    1920.— "Mr. 

Keynes  .  .  .  has  violently  attacked  the  whole  work  of  those  who 
made  the  Treaty  in  a  book  which  exhibits  every  kind  of  ability 
except  the  jwlitical  kind.  .  .  .  Mr.  Keynes  knows  everything  ex- 
cept the  elements  of  politics,  which  is  the  science  of  discovering, 
and  the  art  of  accomplishing,  the  practicable  in  public  afTairs." 

TIMES  ("Annual  Financial  and  Commercial  Review"),  Jan.  28, 
1921  — "The  almost  unhealthy  greed  with  which  Mr.  Keynes's 
book  on  'J'he  Economic  Consequences  of  the  Peace  was  devoured  in 
a  dozen  countries  was  but  a  symptom  of  the  new  desire  to  appre- 
ciate, and.  if  possible,  to  cope  with,  the  economic  consequences  not 
only  of  the  i)eace  but  of  the  war." 

LIVERPOOL  COURIER,  Feb.  2,  1921.— "In  the  eyes  of  the 
world — nt  least,  of  the  world  that  is  not  pro-German — the  repara- 
tion costs  are  wholly  inadequate.  It  is  true  that  in  the  eyes  of 
Mr.  J.  M  Keynes  it  is  wicked  to  charge  Germany  with  the  cost  of 
war  pensions,  hut  we  imagine  that  the  average  man  with  a  simple 
sense  of  simple  justice  does  not  agree  with  Mr.  Keynes." 

"Reai.tst"  in  the  EXGfJSII  REVIEW,  March  1921.— "The 
operation  of  indemnity-payment  must  be  followed  through  to  its 


[4] 

remorseless  end.  .   .   .  The  cry  'Germany  must  pay'  has  still  a  good 
healthy  sound  about  it." 

ENGLISH  REVIEW,  June  1921. — "What  Mr.  Maynard  Keynes 
predicted  in  his  remarkable  book  is  coming  only  too  true.  All  over 
Europe  the  nations  are  standing  to  arms,  thinking  boundaries, 
while  trade  languishes,  production  stagnates,  and  credit  lapses 
into  the  relativities." 

American 

Joseph  P.  Cotton  in  the  EVENING  POST,  New  York,  Jan.  30, 
1920. — "Mr.  Keynes's  book  is  the  first  good  book  on  peace  and  the 
reconstruction  of  Europe.  The  writing  is  simple  and  sincere  and 
true  ...  a  great  book  with  a  real  message." 

Patjl  D.  Ceavath  in  the  8DN  AND  NEW  YORK  HERALD, 
Feb.  2,  1920. — "JS'o  English  novel  during  or  since  the  war  has  had 
such  a  success  as  this  book.  It  should  be  read  by  every  thoughtful 
American.  It  is  the  first  serious  discussion  of  the  Peace  Treaty 
by  a  man  who  knows  the  facts  and  is  capable  of  discussing  them 
with  intelligence  and  authority." 

Habold  J.  Laski  in  the  NATION,  New  York,  Feb.  7,  1920.— 
"This  is  a  very  great  book.  If  any  answer  can  be  made  to  the 
overwhelming  indictment  of  the  Treaty  that  it  contains,  that  an- 
swer has  yet  to  be  published.  Mr.  Keynes  writes  with  a  fullness 
of  knowledge,  an  incisiveness  of  judgment,  and  a  penetration  into 
the  ultimate  causes  of  economic  events  that  perhaps  only  half-a- 
dozen  living  economists  might  hope  to  rival.  Nor  is  the  manner 
of  his  book  less  remarkable  than  its  substance.  The  style  is  like 
finely-hammered  steel.  It  is  full  of  unforgettable  phrases  and  ot 
vivid  portraits  etched  in  the  biting  acid  of  a  passionate  moral 
indignation." 

F.  W.  Tatjssig,  Harvard  University,  in  the  QUARTERLY 
JOURNAL  OF  ECONOMICS,  Feb.  1920.— "Mr.  Keynes  needs  no 
introduction  to  economists.  The  high  quality  of  his  work  is 
known.  This  book  shows  the  sure  touch,  the  wide  interests,  the 
independent  judgment,  which  we  expect.  It  shows,  also,  fine  spirit 
and  literary  skill.  .  .  .  Coming  to  the  economic  provisions  of  the 
Treaty,  I  find  myself  in  general  accord  with  what  Mr.  Keynes  says. 
He  makes  out  an  estimate  of  what  Germany  can  do  in  the  way  of 
reparation.  .  .  .  The  maximum  cannot,  in  his  judgment,  exceed 
ten  billions  of  dollars.  Some  such  figure,  it  is  not  improper  to  say, 
was  reached  independently  by  Professor  A.  A.  Young  in  his  esti- 
mates for  the  American  financial  advisers." 

FINANCIAL  WORLD,  New  York  City,  Feb.  16,  1920.— "There  is 
a  thousand  dollars  of  information  in  it  for  the  average  business 
man," 


[5] 


Fbank  a.  Vanderup  in  ClIICAaO  NEWS,  March  3,  1920.— "I 
regard  it  as  the  most  important  volume  pubiislied  since  the  Armis- 
tice. It  is  certain  to  have  a  profound  etlect  on  world  tiiought.  It 
is  a  deep  analysis  ot  the  economic  structure  of  Europe  at  the  out- 
break of  the  war,  a  brilliant  characterisation  of  the  I'eacc  Confer- 
ence, a  revealing  analysis  of  the  shortcomings  of  the  Treaty,  a  dis- 
section of  the  reparation  claims,  done  with  the  scientific  spirit  and 
steadiness  of  hand  of  a  great  surgeon,  a  vision  of  Europe  after  the 
Treaty,  whidi  is  the  most  illuminating  picture  that  has  yet  been 
made  of  the  immediate  situation  on  the  Continent,  and,  finally, 
constructive  remedial  proposals.  Every  chapter  bears  tlie  imprint 
ot  a  master  hand,  of  a  mind  trained  to  translate  economic  data, 
and  of  absolutely  unfaltering  courage  to  tell  the  truth." 

Alvin  Johnson  in  the  NEW  REPUBLIC,  April  14,  1020.— 
"There  has  been  no  failure  anyAviiere  to  recognise  that  Keyrtts's 
Economic  Consequences  of  the  Peace  requires  an  'answer.'  Too 
many  complacencies  have  been  assailed  by  it.  .  .  .  What  progress 
are  his  critics  making  in  their  attack  on  it?  .  .  .  There  is  sur- 
prisingly little  cCTort  made  by  American  reviewers  to  refute  the 
charge  that  the  Treaty  is  in  many  respects  in  direct  violation  of 
the  preliminary  engagements,  nor  is  anywhere  a  serious  attempt 
made  to  show  that  tliose  engagements  were  not  morally  binding. 
.  .  .  The  critics  have  not  seriously  shaken  Keynes's  characteriza- 
tion of  the  Treaty.  They  have  not  been  able  to  get  far  away  from 
agreement  with  him  as  to  what  the  Treaty  should  have  been. 
They  admit  the  desirability  of  revision." 

DETROIT  FREE  PRESS,  Nov.  21,  1921.— "Only  once  have  I 
seen  Viviani  go  into  action  gradually.  It  was  after  his  last  trip 
to  the  United  States.  He  was  talking  in  a  subdued  conversational 
tone  when  suddenly  he  thought  of  John  Maynard  Keynes's  Iwok, 
The  Economic  Consequences  of  the  Peace.  His  face,  hitherto  mo- 
tionless, twitched  a  little.  His  words  accelerated  slowly.  The 
current  of  his  emotion  spread  curiously  through  the  muscles  of 
his  whole  body,  until  the  figure  which  had  been  relaxed  from  head 
to  foot  became  tense  in  every  fibre.  In  a  moment  he  was  de- 
nouncing, with  the  sonorous  blast  of  his  anger,  the  book  which  he 
said  he  had  encountered  in  every  country  in  the  New  World,  as 
*a  monument  of  iniquity,'  a  monster  which  confronted  him  every- 
where in  South  or  North  America,  and  which  for  some  (to  him) 
incredible  reason  everyone  seemed  to  believe  as  the  gospel  truth 
about  the  pact  of  Versailles." 


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